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STATEMENT 


OF 


HON.  JAMES  H.  ECKELS, 

CO^LPTllOLIiER    OF    THE    CUKRENCY, 


MADE   BEFORE   THE 


COMMITTEE  ON  BANKING  AND  CURRENCY, 

HOUSE    OF    REPRESENTATIVES, 

(At  the  request  of  the  Committee) 
ON   THE 

EXISTING  FINANCIAL  AND  BANKING  SITUATION 

AND   THE 

PROPOSED   REMEDIES. 


January  28,  February  1,  2,  8,  and  18, 1897, 


FIFTY-FOUETH  CONGRESS,  SECOND  SESSIOII, 


WASHINGTON: 

GOVERNMENT    PRINTING    OFFICE. 
1897. 


isroTE. 

This  statement  is  a  part  of  the  full  Report  of  Hearings  before  the  Committee  on 
Banking  and  Currency,  Fifty-fourth  Congress,  and  the  page  numbers  of  that  volume 
are  retained. 


-J    Ar     / 


""^ 


Committee  on  Banking  and  Currency, 

Washington,  D.  C,  Thursday,  January  28,  1897, 

The  committee  met  at  10.30  a.  m. 

Members  present:  The  chairman  (Mr.  Walker),  and  Messrs.  Brosius, 
Johnson,  Van  Voorhis,  ]\IcCleary,  Fowler,  Lefever,  Sj^alding,  Calder- 
head,  Hill,  Cooke,  Cox,  Stallings,  Black,  Newlauds,  and  Hendrick. 

The  Chairman.  Gentleman  of  the  committee,  we  are  to  hear  to-day 
Mr.  James  H.  Eckels,  Comptroller  of  the  Currency. 

The  Comptroller  of  the  Currency  appeared  before  the  committee  in 
response  to  the  following  resolution: 

[Kitract  from  the  Record  of  the  meeting  of  the  Committee  on  Banking  and  Currency,  Decem- 

ber9,  1896. J 

Mr.  Brosius  offered  the  following  resolution,  which  was  unanimously  agreed  to: 

Resolved,  That  all  general  bills  [H.  R.  171,  1999,  6412,  7085,  and  7247]  now  before 
the  committee  contemplating  a  revision  of  the  banking  and  currency  system  be 
submitted  to  the  Comptroller  of  the  Currency,  with  the  request  that  he  analyze  the 
same  in  writing  and  come  before  this  committee  and  state  the  effect  of  eacli  bill  if 
enacted  into  law,  and  also  that  he  formulate  and  submit  to  this  committee  his  views 
of  a  proper  measure  for  the  revision  of  the  hnancial  and  banking  system  of  the 
country. 

STATEMENT  OF   HON.  JAMES  H.  ECKELS,  COMPTROLLER  OF  THE 

CURRENCY. 

Mr.  Eckels  addressed  the  committee  as  follows: 
^  Mr.  Chairman  and  Gentlemen  of  the  Comtviittee:  I  am  not 
C^  sure  I  can  be  of  much  practical  benefit  to  the  committee  at  this  time. 
''^'"The  conimittee  were  good  enough  to  extend  an  invitation  to  me  to  come 
^  befoieyo'fi  to  present  such  views  as  I  entertain  upon4he  subject  of 
^  banking  and  currency,  and  wishing  to  cooperate  with'^f^^u  arriving 
I  at  such  conclusions  as  will  remedy  patent  defects  in  the  existing  bank- 
ing and  currency  laws  of  the  country,  I  accei)ted  it,  and  am  present 
^  to  discuss  such  questions  as  it  is  deemetHi£j|L to  inquire  into. 


232  FINANCIAL    AND    BANKING    SITUATION. 

There  have  been  sent  to  me  by  the  chciiiiiiau  a  number  of  bills  which 
were  prepared  and  presented  by  dillerent  members  of  the  committee, 
and  which,  1  believe,  have  been  dis(;nssed  by  the  authors  of  them  at 
greater  or  less  lenjith.  Tlie  accompanying-  comnumicarion  requested 
me  to  analyze  the  same  and  state  to  the  committee  what  1  (leenied 
^ould  be  the  elfect  of  tliese  bills  if  enacted  into  law.  The  task  iiniiosed 
is  rather  a  dirticult  one,  and  1  have  not  undertaken  it  excei)t  in  a  gen- 
eral way.  I  have  not  reduced  my  views  to  wi-iting,  and  therefore  do 
not  Avish  that  which  I  say  to  be  considered  in  the  nature  of  a  set 
aigument.  My  purpose  is  to  talk  on  the  general  subject  in  a  very 
<;t»n versa tional  way. 

1  am  sure  everyone  will  agree  that  there  is  something  wrong  in  the 
financial  condition  of  the  country,  and  that  it  ought  to  Ije  remedied. 
Tne  dilhculty  arises  not  so  much  in  knowing  Avh;it  tiie  causes  are,  but 
in  agreeing  as  to  the  remedying  of  the  huancial  laws  of  which  the  jjeo- 
ple  complain. 

LONG-CONTINUED   FINANCIAL   DEPRESSION. 

The  long-continued  financial  depression  under  wliich  the  country 
has  rested  and  the  general  ill  condition  of  both  our  owu  trade  and 
commercial  relations  have  been  the  means  of  attracting  more  attentioii 
to  the  lack  of  proper  finance  laws  than  would  otherwise  have  followed. 
I  think  it  not  unlikely  the  general  public  charge  more  to  the  lack  of 
projier  fiiumcial  measures  as  a  cause  of  h;ird  times  than  should  attach 
to  such  cause.  My  owu  belief  is  that  a  great  many  causes  have  con- 
tributed to  i)roduce  the  conditions  which  have  characterized  the  busi- 
ness world  throughout  the  last  few  years.  I  think  a  great  deal  of 
business  loss  and  depression  has  been  brought  about  by  overtrading 
and  a  great  deal  by  unwise  speculation.  So,  too,  a  great  deal  lias 
resulted  from  an  undue  extension  of  credit,  and  still  more  by  unusual 
and  unnecessary  extravagance  in  public  and  i)rivate  expenditure,  A 
careful  examination  will  show  that  there  has  been  on  the  part  of  the 
public  a  living  beyond  the  imblic  income,  and  on  the  part  of  the  indi- 
vidual a  similar  disregard  of  the  first  essential  to  prosperity.  In  addi- 
tion to  all  of  these  sources  of  commercial  and  industrial  weakness  the 
country  has  passed  through  an  unusual  number  of  far-iea(;hing  agita- 
tions of  domestic  and  foreign  questions,  all  tending  to  disturb,  unsettle, 
and  retard  business  undertakings. 

LEGISLATION   NEEDED, 

However,  all  these  things  in  and  of  themselves  would  not  have  pro- 
duced the  results  now  seen  had  they  not  been  brought  to  a  climax  by 
both  bad  financial  legislation  and  a  want  of  good  linancial  legislation. 
It  therefore  seems  to  me,  as  a  stej)  toward  placing  the  country  in  a 
proper  condition,  there  ought  to  be  enacted  such  legislation  as  will 
completely  lelieve  the  Treasury's  curreiu-y  difli(;ulties  and  give  the 
j)eo])le  a  banking  law  that  will,  as  nearly  as  possible,  furnish  all  sec- 
tions of  the  country  with  proper  banking  facilities,  both  as  to  deposits 
and  discounts  and  bank-note  issues. 

VOLT'ME    OF    CURKENCV    NOT    THE    QUESTION. 

Throughout  the  wliole  discussion  of  this  question,  both  in  the  press 
antl  in  i)ublic,  and,  with  all  due  delerence  to  Congress,  in  Congress 
as  well,  it  seems  to  me  there  has  been  more  importance  attached  to 
the  mere  matter  of  the  volume  of  the  circulating  medium  of  the  country 


FINANCIAL    AND    BANKING    SITUATION.  233 

than  to  wSome  other  tilings  which  are  quite,  if  uot  more,  essential  to  a 
right  solution  than  vohitne.  There  may  i)ossibly  liave  been  a  time  in 
the  country  when  the  vohime  of  the  circuhition  was  the  most  important 
factor  to  consider,  but  J  tiiink  tliat  period  has  passed.  It  is  a  great 
mistake  to  take  the  position  that  it  is  essential  to  financial  i)rosperity 
that  in  any  particular  country  or  in  any  particular  tinancial  center 
there  should  always  be  a  large  volume  of  money.  The  modern  methods 
of  transportation  and  the  improved  methods  of  banking  exchanges 
have  largely  solved  that  question.  It  is  now  of  a  great  deal  less  impor- 
tance in  this  country,  for  instauce,  whether  there  is  always  here  a  large 
volume  of  monej'  than  it  is  that  here  is  maintained  the  very  highest 
credit,  national,  corporate,  and  individual.  If  we  have  credit  and  hold 
out  investments  which  offer  inducements  to  those  who  have  cajiital  to 
invest,  it  is  immaterial  whether  loanable  capital  is  immediately  in  this 
country  or  elsewhere.  It  will  always  seek  the  place  where  the  returns 
on  the  investments  promise  to  be  the  best  for  the  lender. 

ESTABLISH   NATIONAL    CREDIT. 

The  first  essential  to  placiug  the  people  of  this  country  upon  a  safe 
business  basis  is  to  so  establish  the  national  credit  that  it  will  cease  to 
be  a  matter  of  discussion  either  here  or  elsewhere.  It  ought  to  be 
rid  of  everything  which  raises  the  question  as  to  whether  or  no  the 
country  will  at  all  times  and  under  all  circumstances  maintain  it.  The 
simple  fact  that  there  has  been  a  continual  discussion  for  the  past  four 
years  of  the  ability  of  the  United  States  to  maintain  the  credit  of  the 
country  and  redeem  its  demand  obligations  in  gold  has  alone  been  a 
great  source  of  financial  embarrassment  to  the  people.  The  agitation 
of  it  worked  harm  to  them  abroad  and,  through  a  retlex  action,  at  home. 
I  am  thus  certain  that  the  important  act  is  to  take  the  step  that  will 
obviate  any  further  discussion  upon  the  question  of  the  maintenance 
here  of  national  credit.  Ultimately,  if  not  immediately,  I  think  the 
solution  of  the  question  of  money,  standards,  and  volume  of  circulation 
in  this  country  will  come  through  an  economically  sound  banking  bill. 

BILLS    BEFORE    THE    COMMITTEE. 

The  bills  which  have  been  presented,  with  a  single  exception — the  one 
presented  by  Mr.  Brosius — all  tend  to  the  same  thing,  in  recognizing, 
as  the  predominating  evil  in  our  financial  system  and  a  source  of  imme- 
diate weakness,  the  demand  obligations  of  the  Government.  The  bill 
l)repared  by  the  chairman  of  the  committee  recognizes  that  fact;  the 
bill  which  was  prepared  by  Mr.  Fowler  recognizes  that  fact;  the  bill 
prepared  by  Mr.  Hill  recognizes  that  fact,  and  the  bill  prepared  by  Mr. 
Cox  does  also.  The  bill  prepared  by  Mr,  Brosius  as  an  amendment  to 
the  present  law  not  only  takes  the  position  that  these  demand  obliga- 
tions are  not  an  evil,  but  distinctly  provides  that  nothing  in  his  bill  shall 
in  any  wise  repeal  or  set  aside  the  provisions  of  the  present  law  which 
provide  that  the  demand  obligations  of  the  Government  shall  not  be 
canceled  and  retired,  and  makes  compulsory  their  reissue  by  the  Secre- 
tary of  the  Treasury.  While  these  bills  recognize  this  fact,  they  all 
differ  uj)on  the  point  of  how  the  Government  shall  be  rid  of  these 
obligations. 

THE    SOT'RCE    OF    OUR    FINANCIAL    TROUBLE. 

I  am  confident  that  the  greatest  source  of  the  financial  difficulty  in  the 
Treasury  arises  from  the  recurring  current  redemption  of  the  demand 
obligations  of  the  Government.     My  own  opinion  in  this  regard  is 


234  FINANCIAL    AND    BANKING    SITUATION. 

empbasized  by  the  provisions  of  these  various  bills  wliich  I  have 
enumerated.  If  it  was  put  to  any  one  of  the  authors  of  these  meas- 
ures, I  do  not  believe  there  is  one  of  them,  except  Mr.  Brosius,  whose 
views,  judging  from  his  bill,  are  very  decidedly  the  other  way.  but 
would  say  that  tlie  best  thing  to  do,  if  it  could  be  done  without  too 
great  expense,  would  be  the  funding  through  a  bond  issue  of  tliese 
demand  obligations.  In  tliis  way  the  i)ayment  and  cancellation  of  them 
could  be  had  and  the  Government  be  put  in  a  i)Osition  where  it  would 
not  be  necessary  for  it,  at  great  cost  and  worry,  to  maintain  against 
them  a  gold  reserve  for  their  current  redemption.  But  while  all  seem 
to  agree  that  such  course  would  be  the  best  to  pursue,  there  is  appar- 
ently a  diiference  of  opinion  as  to  whether  it  is  at  this  time  the  most 
practical  thing  to  do. 

I  am  very  free  to  say  that  my  own  judgment  is  that  the  practical 
thing  in  a  matter  affecting  the  public  interest  is  always  the  best  thing, 
and  the  best  thing  is  always  the  practical  thing.  There  may  be,  how- 
ever, in  this  instance,  some  very  good  reasons  known  to  tliose  who  take 
such  view  why,  if  the  desired  thing  is  to  be  accomplished  in  the  end, 
the  most  direct  way  is  not  the  best. 

PROTESTS  AGAINST   RETIREMENT    OF   GREENBACKS. 

I  am  aware  that  there  is  much  protest  and  many  objections  urged 
against  the  refunding  and  cancellation  of  the  Government's  demand 
obligations,  even  on  the  part  of  those  who  believe  they  cause  more  or 
less  loss.  The  main  objection  on  the  ])art  of  those  who  believe  in  the 
retirement  of  them,  but  not  in  funding  them  through  an  issue  of  bonds, 
is  that  the  public  would  protest  against  tlie  plan  and  the  reciuisite  leg- 
islation could  not  be  passed.  The  error  of  the  general  public  arises 
in  the  first  instance  from  looking  upon  a  legal  tender  demand  obliga- 
tion of  the  Government  as  a  noninterest -beariug  debt,  and  in  the  second 
because  of  a  belief  that  their  funding  would  tend  to  contract  the  coun- 
try's volume  of  currency.  It  is  not  a  noninterest-bearing  debt,  but 
instead  is  the  most  expensive  debt  the  Government  has  to  do  with, 
j^s  a  direct  money  proj^osition  the  keeping  idle  and  out«of  the  channels 
of  trade  of  a  large  sum  of  gold  as  a  necessary  reserve,  with  the  conse- 
quent loss  of  interest  on  it,  is  one  item  of  continued  expense,  while  the 
interest  upon  and  ultimate  payment  of  the  bonds  to  maintain  the  current 
redemption  of  the  legal-tender  obligations  is  a  still  larger  item  of  cost 
to  the  people.  Added  to  these  things  is  the  patent  fact  that  these 
demand  obligations  are  always,  in  a  time  of  tinancial  depression,  a 
source  of  weakness  not  only  to  the  Government  but.to  every  business 
interest,  thus  making  them  immeasurably  a  greater  burden  than  a 
bonded  indebtedness  for  a  definite  amount  and  limited  as  to  payment 
to  a  definite  period  of  time. 

WOULD   NOT   CAUSE   CONTRACTION. 

Turning  to  the  suggested  dangers  of  a  contraction  of  the  currency 
the  assumption  that  such  a  result  to  a  harmful  extent  would  'bllow  is 
erroneous.  1  do  not  believe  that  a  contraction  of  the  currency  beyond 
that  which  is  healthful  is  possible  in  this  ccmntry,  if  this  country's  credit 
is  un(|uesti()ned  and  uncjuestionable.  I  do  not  believe,  if  the  legal  ten- 
ders were  retired  gradually — you  can  not  retire  them  all  at  (me  time, 
and  1  do  not  think  anybody  ever  contemplated  that  they  should  l»e — 
any  contraction  in  lihe  volume  of  our  circulating  medium  would  follow 
more  than  was  needful  to  business  interests. 


FINANCIAL    AND    BANKING    SITUATION.  235 

If  the  plan  which  was  entered  on  by  Secretary  McCuUoch,  nnder  an 
act  of  Congress,  had  been  coiitinned  to  the  end,  the  conntry  wouhl  not 
have  suffered  from  half  the  financial  difliculties  it  has.  There  would 
also  have  been  less  linancial  heresies  taught  uj)on  the  subject  of  a  Gov- 
ernment-created money. 

If  these  obligations  should  now  be  retired  gradually,  whether  by  fund- 
ing or  otherwise,  it  would  be  found  wherever  money  was  needed  that 
either  the  banks  would  supply  the  necessary  currency  or  else  gold  would 
come  from  other  places  where  it  was  not  needed  to  fill  up  any  vacuum 
here. 

The  practical  truth  in  currency  matters  is  that  there  never  is  a  vacuum 
permitted  to  exist  which  ought  to  be  filled,  and  where  reasons  exist  why 
it  ought  to  be  filled,  but  that  it  is  immediately  filled.  The  needed  amount 
for  this  purpose  comes  from  places  where  there  is  too  much  money  to  be 
profitably  employed. 

DANGER  OF  THE  PRESENT  SYSTEM. 

If  the  legal  tenders  were  retired,  with  the  country  possessed  of  a 
proper  banking  bill,  whatever  deticiency  was  created  or  increase  in  the 
circulation  was  needed  would  come  through  the  banks,  or  else  gold 
would  come  here  from  other  countries.  At  present  the  business  inter- 
ests of  the  country  do  not  suffer  half  as  much  in  actual  money  loss 
from  the  present  banking  system  as  they  do  from  the  compulsory  main- 
tenance of  the  demand  obligations  of  the  Government,  which  are  cur- 
rently redeemed  and  which  are  never  retired.  It  must  be  evident  to 
any  man  of  practical  business  experience  on  this  committee  that  he 
would  find  himself  financially  embarrassed  at  the  end  of  a  reasonable 
period  of  time  if  he  undertook  to  always  keep  out  his  own  notes  to  a 
larger  amount  than  it  seemed  he  could  redeem,  and  whenever  he  would 
pay  one  would  reissue  it  again,  whether  or  not  it  was  necessary  to  so 
do.  He  would  some  time  come  up  against  a  settling*  day  which  would 
break  him. 

This  is  just  the  case  with  the  policy  the  Government  is  trying  to 
make  successful.  It  has  recently  been  near  a  settling  day,  and  only  by 
a  narrow  margin  escaped  disaster.  I  hardly  think  it  will  be  as  fortu- 
nate again.  It  certainly  ought  not  to  run  the  risk  with  the  attendant 
consequences  that  would  fall  ui)on  all  interests  in  case  of  failure  over- 
taking it.  If,  as  I  have  stated,  the  evil  through  which  our  financial 
system  entails  the  greatest  loss  is  these  demand  obligations,  there  will 
not  come  from  a  revision  of  the  present  banking  system  a  practical, 
substantial  benefit  to  the  peo])le  unless  it  is  provided  in  some  way  to 
get  rid  of  them. 

BANKS   SHOULD   ASSUME   REDEMPTION   OF  NOTES. 

A  prominent  feature,  as  I  have  said,  in  all  of  these  different  bills,  is 
a  i)rovision  to  this  end,  and  I  think  it  may  be  said,  so  far  as  those  who 
have  introduced  the  bills  with  such  provision  are  concerned,  they  rec- 
ognize that  the  largest  benefit  to  be  obtained  in  a  new  banking  law  is 
to  get  the  Government  out  of  the  business  of  issuing  credit  currency 
and  bestow  such  power  entirely  upon  the  banks,  making  the  banks 
maintain  not  only  the  current  but  the  permanent  redemj)tion  of  their 
notes  in  gold.     I  think  the  banks  are  fully  able  to  do  this. 

Mr.  Johnson.  I  would  like  to  have  you  amplify  that — that  the  banks 
will  be  fully  capable  of  sustaining  the  burden. 


236  FINANCIAL    AND    BANKING    SITUATION. 


BANKING   BEFORE    THE    WAR. 

Mr.  Eckels.  Up  until  the  time  of  the  war  the  banks  of  the  country, 
whicli  were  not  then  either  as  strong-  in  tlieir  linancial  condition  oi-  as 
well  eqnip])ed  in  facilities  of  exchange  and  methods  of  transportation, 
wherever  i)roperly  and  honestly  conducted  upon  safe  banking  priuci- 
j)les  and  not  as  speculative  enterprises,  maintained  not  only  the  current 
and  ultimate  redemption  of  the  notes  which  they  issued,  but  were  strong 
enongh  in  their  gold  holdings  to  furnish  all  the  gold  that  was  needed 
for  domestic  trade  and  to  settle  interinrtional  balances.  They  not  only 
did  this  up  to  the  time  of  the  breaking  out  of  the  war,  but  for  some 
time  thereafter.  Again,  after  the  resumption  of  the  specie  j)ayments 
they  continued  to  maintain  themselves  strong  enough  in  their  gold 
holdings  to  furnish  all  the  gold  needed  for  all  business  purposes,  but  in 
addition  so  sni>plied  it  to  those  wishing  it  for  any  purpose  that  the 
demand  obligations  of  the  Government  were  not  presented  for  current 
redemption. 

]\Ir.  Hill.  And  as  a  matter  of  fact  we  were  more  dependent  upon 
foreign  nations  at  that  time  than  now? 

Mr.  Eckels.  Yes;  very  much  more  dependent. 

The  Chairman.  At  that  point,  if  you  want  a  suggestion  as  to  the 
fact 

Mr.  Eckels.  I  would  be  very  glad,  Mr.  Chairman,  at  any  time  to 
have  any  suggestion  any  member  of  the  committee  may  desire  to 
make. 

the    SUFFOLK    SYSTEM. 

The  Chairman.  In  New  England,  under  the  Suffolk  system,  whicli  is 
generally  conceded  to  be  the  best  banking  system  on  the  whole  we  had 
in  this  country  before  the  war,  the  total  specie  held  in  those  banks  for 
circulation  in  New  England  was  13i  per  cent,  and  that  would  amount 
on  $800,000,000  of  ciiculation  to  1108,000,000.  Their  specie  for  loans 
and  discounts  was  .'J.'J  per  cent,  and  that,  on  the  $4,000,000,000  of 
discounts,  $1,SOO,000,000  of  national-bank  loans  and  discounts  and 
$2,200,000,000  of  State  bank  loans  and  discounts,  would  amount  to 
$156,000,000.  1  think  we  now  have  of  visible  gold  $315,000,000.  I 
thought  1  would  give  those  figures. 

Mr.  Eckels.  Thank  yon.  So  the  only  thing  to  judge  by,  as  to  what 
can  be  done,  is  that  wliich  the  history  of  tlie  country  shows  has  been  done. 
There  is  the  fact  that  before  the  war,  under  the  then  existing  State 
banking  systems,  properly  conducted  institutions  redeemed  their  notes 
in  gold,  and  were  always  furnished  the  gold  necessary  for  the  business 
interests  of  the  country.  Of  course  there  were  a  great  many  institu- 
tions which  were  wholly  fraudulent,  and  there  were  great  losses  to  note 
holders,  but  that  was  becanse  of  the  bad  banking  laws  and  the  reck- 
less and  dishonest  manner  in  whicli  the  individnal  banks  which  failed 
to  redeem  their  notes  in  gold  were  conducted. 

Mr.  Calderheai),  The  Government  obligations  were  at  a  discount 
the  most  of  the  time  for  several  years  before  the  war. 

Mr.  Eckels.  1  do  not  think  the  Government  ever  had  any  such 
o1)ligations  out  before  the  war  except  in  the  shape  of  a  comparatively 
sunill  amount  of  Treasurv  notes  during  a  jieriod  shortly  after  the  war 
of  1812. 

The  Chairman.  How  loni:-  were  those  outf 


FINANCIAL   AND    BANKING    SITUATION.  237 


FINANCIAL   LEGISLATION   OF   THE   WAR. 

Mr.  Eckels.  Only  a  short  while.  It  will  be  recalled  by  members  of 
the  committee  familiar  with  the  ilnaucial  legislation  of  the  war  that  in 
the  discnssion  of  the  bill  introdnced  by  Mr.  Sj)aldini;',  which  authorized 
the  first  issuance  of  Treasury  notes,  it  was  very  stronjily  protested 
by  those  opposed  to  the  measure  that  the  (lovernment  was  enterin;;' 
upon  a  policy  which  had  never  been  known  of  befoie,  which  never  had 
been  suggested  in  any  debate  or  embodied  in  any  bill,  and  which  was 
then  only  justified  by  those  urgino-  it  upon  the  ground  of  the  pressing- 
necessity  of  an  extraordinary  condition  of  alfairs,  necessitating  extraor- 
dinary expenditures.  The  measure  only  became  a  law  under  protest, 
the  strongest  advocates  of  it  placing  their  advocacy  of  it  ui)on  the 
grounds  of  necessity,  and  emphasizing  the  fact  that  as  a  financial  proj)©- 
sition  it  was  unsound  and  repugnant  to  all  of  the  country's  previous 
financial  policy.  The  disbelief  in  the  soundness  of  it  was  emphasized 
by  a  provision  in  the  first  instance  that  the  Treasury  notes  thus  issued 
and  thereafter  issued  should  be,  up(»n  i)resentation  in  certain  sums 
within  a  certain  period,  refunded  into  bonds. 

All  of  those  advocating  the  bill,  including  Mr.  Sherman  and  others, 
])romised  that  immediately  upon  the  close  of  the  war  the  notes  should 
be  retired.  The  present  Senator,  then  Representative  from  Vermont,  Mr. 
Morrill,  not  only  refused  to  su])port  the  measure,  but  upon  every  occasion 
was  strongly  against  it.  His  frequently  expressed  judgment  to-day  is 
that  the  expenses  of  the  war  were  enormously  increased  by  the  issuance 
of  legal-tender  Government  paper  at  that  time,  and  that  it  was  wholly 
unnecessary.  It  was  the  opinion  of  the  New  York  bankers — and  I  sup- 
pose other  bankers,  but  I  si)eak  particularly  of  the  Kew  i'ork  bankers — 
who,  up  until  the  time  of  the  issuance  of  the  Treasury  notes,  assisted 
the  Government  in  maintaining  the  gold  jyajnuents,  that  thej  could  have 
continued  to  maintain  gold  payments,  despite  the  strain  of  the  war,  if 
Congress  had  not  passed  the  first  act.  Secretarj^  Chase  never  thor- 
owghly  believed  in  it,  and  only  after  reiieated  eflbrts  was  dragooned 
into  giving  it  sanction. 

GOLD    PAYMENTS   DURING   THE    WAR. 

The  Chairman.  Mr.  Coe,  of  ISTew  York,  and  two  other  bankers  made 
a  proposition  to  JNIr.  Chase,  so  I  was  told  by  Mr.  Coe,  that  they  would 
maintain  gold  payments  provided  they  allowed  the  banks,  by  some 
national  legislation,  to  issue  all  the  currency  the  Government  needed. 
They  would  guarantee  to  maintain  the  gold  )>ayments,  but  Mr.  Chase 
thought  he  possibly  could  not  carry  that  through  Congress. 

]Mr.  Cooke.  Looking  back  over  the  history  of  that  period,  do  you 
believe  it  was  possible  to  have  maintained  gold  ])ayments  during  the 
war"? 

Mr.  Eckels.  Yes.  I  base  my  judgment  largely  upon,  the  opinion  of 
those  who  were  then  most  familiar  with  the  situation.  Certainly  the 
return  to  gold  payments  was  greatly  delayed  after  the  war  by  the 
failure  to  fund  these  obligations. 

The  Chairman.  Louisiana  maintained  gold  payments  clear  up  to 
Butler's  capture  of  Xew  Orleans. 

Mr.  SpaldinCt,  Do  you  think  that  banks  could  have  maintained 
specie  i)ayments  during  1893, 1894,  and  1895? 

Mr.  Eckels.  Yes. 


238  FINANCIAL    AND    BANKING    SITUATION. 

]Mr.  SrALDiNCr.  Is  it  not  a  fact  that  tUey  really  suspended  all  pay- 
ments aud  paid  only  through  clearing-houses? 

Mr.  Eckels.  Yes;  many  banks  i)aid  through  the  clearing-house. 
Mr.  Spalding.  Because  they  had  no  currency,  muck  less  goldf 

PANIC    OF   1893. 

Mr.  Eckels.  This  thing  lias  to  be  remembered  in  connection  -with 
the  panic  of  1893.  There  would  not  have  been  the  panic  of  1893  and 
its  effect  upon  the  banking  institutions  of  this  country  if  under  the 
financial  legislation  of  1890  the  (lovernment's  demand  obligations  had 
not  been  greatly  increased  without  in  anywise  empowering  the  Secre- 
tary of  tiie  Treasury  to  increase  the  gold  reserve  to  meet  the  new 
gold  obligations.  There  was  thus  created  a  doubt  as  to  whether  the 
Government  was  able  to  maintain  gold  ])ayments.  If  the  legal  tenders 
had  not  been  outstanding  the  (lovernment  would  not  have  ]mt  it  in 
the  hands  of  anybody  to  go  to  the  Treasury  of  the  United  States  aud 
withdraw  the  gold  from  it. 

Mr.  Cooke.  Then  you  make  it  a  matter  of  national  credit  and  not  a 
matter  of  necessity.     Is  that  the  principle? 

Mr.  Eckels.  Largely  that. 

Mr.  Spalding.  I  do  not  like  to  interrupt  you 

Mr.  Eckels.  I  am  perfectly  willing  to  be  interrupted. 

Mr.  Spalding.  You  put  it,  as  I  understand  your  argument,  that  the 
demand  for  gold  was  a  speculative  demand  largely,  or  fear,  or  some- 
thing of  that  kind;  not  an  actual  demand  as  against  the  national  obli- 
gations abroad? 

Mr.  Eckels.  I  think  the  demand  came  through  fear  of  a  failure  of 
the  Government's  ability  to  maintain  gold  i)ayments.  The  policy  of  the 
Government  under  the  resumi)tion  of  s})ecie  payment  act  was  that,  as 
against  $;i4(i,()00,()()0  of  demand  obligations  of  the  Government,  a  reserve 
fund  of  $100,<)0(>,()0(l  of  gold  was  sufficient  for  the  current  redemption  of 
those  demand  obligations. 

effect   of   the   SHERMAN  LAW. 

The  act  of  1890  increased  the  amount  of  those  obligations  by 
615^,000,000  without  in  any  wise  increasing  the  amount  of  your  reserve, 
and  while  the  holders  of  them  might  believe  that  $100,000,000  might  be 
sutticicnt  for  the  current  redemi)tion  of  $.'>1:G,000,000  they  doubted  that 
$100,000,000  was  sufticient  to  provide  current  redemption  for  almost 
$500,000,000. 

The  CiiAiUMAN.  The  basis  of  that  discrimination,  however,  is  this: 
The  ])eoi)le  were  educated  to  believe  that  $100,000,000  was  sulfuMent 
and  believed  it  was  necessary  to  have  $100,000,000  for  $310,000,000  of 
obligations.  They  were  convinced  that  $100,000,000  was  not  suflicient 
for  $500,000,000  of  obligations,  and  therefore  a  fear  created  the  demand 
for  gold. 

Mr.  Spalding.  Is  it  not  a  fact  that  until  trade  relations  changed 
they  had  this  deuumd  for  gold  and  it  was  a  legitimate  demand  to  pay 
our  exchanges  abroad,  and  since  the  change  of  current  there  was  no 
demand  for  gold? 

Mr.  Eckels.  I  think  there  were  other  causes  entering  into  it.  I  do 
not  think  any  of  these  great  finan(;ial  disturbances  are  i)ro(luced  by  a 
single  cause,  "but  there  is  always  one  yreat  cause  which  brings  many  to 
a  culmination. 


FINANCIAL    AND    BANKING    SITUATION.  239 

Mr.  Johnson.  It  is  your  opinion  that  the  main  reason  for  the  drain 
on  the  gokl  reserve  which  has  occurred  during-  the  present  Administra- 
tion was  a  feeling-  on  tlie  part  of  the  people  that  the  Government  might 
not  be  able  to  maintain  its  credit? 

Mr.  Eckels.  Yes. 

Mr.  Johnson.  By  keeping  its  demand  obligations  at  par? 

Mr.  Eckels.  I  think  that  from  the  time  of  the  passage  of  the  Bland- 
Allison  actit  became  evident  that  the  Government  was  coining- and  stamp- 
ing a  piece  of  metal,  calling  it  a  hundred  cents  when  it  was  not  in  and 
of  itself  worth  one  hundred  cents.  It  was  dependent  upon  something 
to  make  it  of  that  value,  and  when  to  this  was  added  the  further  tend- 
ency to  do  the  same  thing  through  the  oi)eration  of  the  Sherman  law 
and  the  purchase  of  silver,  these  acts  combined  caused  doubt  in  the 
minds  of  those  who  were  dealing  with  us  abroad  and  doubt  of  people 
at  home  as  to  the  ability  of  the  Government,  with  the  limited  powers 
of  the  Secretary  of  the  Treasury,  to  maintain,  what  the  Sherman  law 
said  was  the  policy  of  the  Government,  the  parity  of  the  two  metals 
and  to  redeem  the  Government's  demand  obligations  in  gold. 

Mr.  Johnson.  Another  question.  What  has  caused  tlie  stoppage  of 
the  demand  on  the  Government  for  redemi)tion ;  and  is  it  likely  to  occur, 
and  if  so,  under  what  circumstances? 

single  gold  standard. 

Mr.  Eckels.  It  is  likely  to  occur  whenever  the  public  mind  is  again 
put  in  a  condition  which  makes  it  believe  that  this  Government  is  not 
going  to  maintain  the  single  gold  standard  of  value,  or  is  not  going  to 
be  able  to  maintain  gold  payments  of  its  outstanding  obligations. 

Mr.  Johnson.  Do  you  think  it  ceased  because  the  j)ublic  mind  was 
reassured  on  that  jjoiut? 

election   of   1896. 

Mr.  Eckels.  I  think  it  has  ceased,  because  the  repeal  of  the  Sherman 
law  has  given  the  public  to  understand  that  unless  some  further  legis- 
tiou  is  enacted  we  have  gotten  to  the  end  of  increasing  the  money  of 
the  country  with  a  dollar  which  in  and  of  itself  is  not  worth  a  dollar. 
I  also  think  the  fact  that  the  recent  election  was  against  those  advo- 
cating- the  free  and  unlimited  coinage  of  silver  has  done  very  much 
toward  stopping  the  presentation  of  these  demand  obligations.  The 
situation  has  further  been  relieved  because,  owing  to  the  peculiar  con- 
dition of  aHairs  abroad,  there  has  been  a  great  demand  for  our  bread- 
stuffs,  whereby  yery  much  gold  has  come  into  the  country.  A  large 
])ortion  of  it  has  gone  into  the  Treasury.  It  is  safe  to  say,  however, 
that  whenever  we  come  again  to  the  point  where,  through  overspecula- 
tion  and  overtrading,  business  disasters  follow,  or  because  of  some  bad 
piece  of  financial  legislation  the  credit  of  the  Government  becomes  a 
matter  of  public  discussion,  these  demand  obligations,  unless  paid  and 
canceled,  give  the  means  to  continually  embarrass  the  Treasury  Depart- 
ment and  create  still  greater  adverse  conditions  in  the  country's  busi- 
ness world. 

Mr.  Fowler.  Suppose  in  the  next  six  months  the  fortuitous  circum- 
stances which  are  in  our  favor  should  turn  against  us  and  there  should 
be  a  natural  demand  for  8100,000,000  of  gold;  where  would  they  go  to 
get  that  ? 

Mr.  Eckels.  They  would  go  to  the  Treasury,  because  we  do  as  no  other 
country  in  the  world  does.    The  operation  of  the  law  makes  the  Treasury 


240  FINANCIAL   AND    BANKING    SITUATION. 

of  tlie  United  States  the  oue  source  of  supply  not  only  for  all  the  gold 
that  our  own  people  want  but  for  the  people  of  every  country  in  the 
world  who  wish  to  send  here  and  buy  it. 

Mr.  Fowler.  If  they  withdrew  the  $100,000,000  out  of  the  Treasury, 
what  would  transpire! 

SILVER   REDEMPTION,    REPUDIATION,    OR   MORE    BONDS. 

Mr.  Eckels.  We  would  be  compelled  to  redeem  the  obligations  of 
the  Government  either  in  a  depreciated  metal  or  else  to  repudiate  them 
or  else  to  again  do  what  the  present  Administration  has  done,  sell 
more  bonds  to  maintain  the  gold  reserve. 

Mr.  Johnson.  If  there  was  any  way  of  getting  the  Treasury  divorced 
from  the  banking  business  and  the  bank  issue  was  devolved  upon  the 
banks,  they  would  go,  under  this  condition,  to  the  banks? 

Mr.  Eckels.  Yes. 

Mr.  Johnson.  And  your  oi^inion  is  that  the  banks  would  be  as  able 
as  the  Government  to  do  itf 

Mr.  Eckels.  Yes,  more  able.  The  reason  the  banks  are  better  able 
than  the  Government  is  simple.  The  Government  has  no  proper  machin- 
ery for  banking.  A  bank  has  all  the  machinery  for  obtaining  credit 
and  buying  gold.  It  can  discount  its  bills;  it  has,  if  well-conducted, 
all  the  methods  of  obtaining  gold  wherever  it  is  necessary,  and  at  a 
moment's  notice.  During  the  panic  of  1893,  the  banks  in  Chicago, 
for  instance,  were  able  to  send  to  London  and  Berlin  and  get  gold,  just 
as  the  banks  of  New  York  last  year  had  the  machinery  which  enabled 
them  to  obtain  the  gold  to  place  in  the  Treasury  in  order  that  it  might 
maintain  the  necessary  gold  reserve.  All  this  the  Government  of  the 
United  States  could  not  do  unless  it  issued  bonds,  not  having  the 
machinery  which  attaches  to  a  bank. 

Mr.  Hill.  The  banks  in  New  York  have  a  call  loan  on  $50,000,000 
of  gold  in  London. 

Mr.  Fowler.  In  regard  to  this  $100,000,000  of  gold  in  the  Treasury, 
in  case  you  reverse  the  situation  and  there  was  a  demand  of  $100,000,000 
made  on  the  banks  of  New  York,  they  at  once  would  realize  they  would 
want  to  i)rote('t  this  reserve  and  would  put  np  the  rate  of  interest  to 
hold  the  gold  in  this  country  and  it  would  not  go  abroad'? 

Mr.  Eckels.  That  is  the  practice  of  the  Bank  of  England. 

Mr.  McCleary.  Suppose  tlie  banks  in  New  York  had  demand  obli- 
gations which  were  payable  in  gold,  how  would  the  rate  of  discount 
affect  that? 

Mr.  Eckels.  Of  course  it  would  not  affect  the  presentation  of  its 
notes. 

Mr.  McGleary.  Would  it  not  put  the  bank  in  exactly  the  same  con- 
dition as  it  would  i)ut  the  Government  with  the  notes  issued* 

The  Chairman.  You  can  not  do  that;  this  does  not  i^ut  them  in  the 
same  position  of  the  banks. 

BANKS   would   MAINTAIN   GOLD   REDEMPTION. 

Mr.  Eckels.  I  think  you  would  find  this:  As  against  their  notes  of 
issue  the  banks  Avould,  from  their  knowledge  of  the  usual  amount  of 
current  redemption,  maintain  the  necessary  amount  of  gold  for  the 
redemption  of  tliose  notes.  Just  as  a  bank  is  now  able  to  know  how 
much  of  a  reserve  it  is  necessary  to  have  in  bank  as  against  its  dei)osits. 
Every  prudently  conducted  bank  would  be  com[>ell('(l  for  self-protection 
to  maintain  a  proper  reserve,  and  the  notes  issued  by  the  bank  would 


FINANCIAL   AND   BANKING    SITUATION.  241 

be  redeemed,  and  they  would  not  be  issued,  as  in  the  present  case, 
unless  there  was  a  demand  for  them. 

Mr.  Spalding.  That  would  contract  the  currency? 

Mr.  Eckels.  The  banks  would  contract  the  currency  whenever  nec- 
essary, and  they  would  enlarge  it  when  necessary.  It  is  a  great  mis- 
take to  think  that  it  is  a  possible  thing  tor  banks  to  prosper  by  <l()ing 
those  things  which  tend  to  make  the  general  public  poverty  stricken, 
and  by  doing  things  which  tend  to  make  depression  everywhere. 

Mr.  McCleary.  That  is,  that  there  are  no  adverse  relations"? 

BANKS  DEPENDENT  ON  aENERAL  PROSPERITY. 

Mr.  Eckels.  There  can  be  no  adverse  relations.  The  prosperity  of 
the  banks  depends  upon  the  prosperity  of  the  people,  just  as  the  people 
of  one  section  of  the  country  are  dependent  for  prosperity  upon  the 
prosperity  of  the  people  of  another  section  of  the  country.  Their  rela- 
tions are  mutual.  Thus  it  would  follow  that  no  bank  would  ever  con- 
tract its  currency,  even  though  it  had  the  right  to  do  so,  if  it  was 
apparent  that  by  so  doing  there  would  be  a  general  financial  derange- 
ment of  the  country  and  general  business  confusion.  When  such  a 
point  was  reached  the  banks  would  have  reduced  themselves  by  their 
own  act  to  a  position  where  they  could  not  collect  their  assets,  where 
there  could  be  no  demand  for  their  money,  and  consequently  no  profit 
in  the  banking  business. 

An  aggregation  of  people  into  a  corporation  does  simi)ly  the  things 
which  an  individual  would  do  in  his  own  private  transactions.  As  an 
individual  he  does  the  thing  which  will  mean  prosperity  to  him,  knowing 
that  prosperity  can  not  be  possible  if  those  holding  his  property  are 
unable  when  he  wants  that  jjroperty  to  return  it,  and  he  knows  that 
such  debtors  are  not  able  if  there  is  a  general  financial  depression. 

Mr.  Cox.  While  on  that  point  1  want  to  call  your  mind  to  one  thing. 
As  stated  by  you,  and  has  been  stated  before  this  committee  ever  since 
I  have  been  a  member  of  it,  there  has  been  an  effort  all  along  the  line 
to  control  these  demand  notes  in  some  shape  and  keep  them  away  from 
the  Treasury? 

Mr.  Eckels.  Yes.     ' 

Mr.  Oox.  When  you  come  to  think  of  it  there  is  but  one  of  two  ways 
to  do  that,  as  I  see.  First,  they  have  to  be  retired,  and  you  issue  bonds 
to  take  them  in,  or  you  can  use  them  as  the  basis  of  banking.  That  is 
the  Secretary's  idea  1 

Mr.  Eckels.  Yes,  and  that  is  to  an  extent  the  chairman's  idea. 

Mr.  Cox.  I  was  going  to  put  this  question  to  you 

The  Chairman.  I  did  not  hear  that  question. 

Mr.  Eckels.  1  say  that  is  to  some  extent  your  idea. 

The  Chairman.  Not  as  a  basis  for  circulation,  but  to  be  retired 
through  the  banks. 

GREENBACKS   AS   A  BASIS  FOR  BANKING. 

Mr.  Cox.  To  bring  out  my  point :  Is  there  any  serious  objection  and 
can  there  be  any  serious  objection  to  using  these  demand  notes  as  a 
basis  of  banking?  Now,  is  there  any  serious  objection — of  course 
always  looking  to  the  line  of  contraction  which  can  be  very  easily 
avoided — is  there  any  serious  objection  to  using  these  greenbacks  as  a 
basis  for  banking  and  holding  them  away  from  the  Treasury? 

Mr.  Eckels.  It  would  simply  be  imprisonment  for  life,  with  the 
attendant  danger  to  the  people  of  pardon  instead  of  direct  execution, 
CUR 16 


242  FINANCIAL    AND    BANKING    SITUATION. 

The  CHAimiAN.  Ls  it  not  a  fact  that  wlienever  money  actuniuhites 
in  the  Tre;i.sury  for  anyi)nrpose  whatever  there  is  a  large  section  of  the 
country  that  desires  that  money  shonkl  be  ]iaid  out;  and  is  not  there 
a  demand  that  even  silver  dollars  be  paid  out  ?  Is  not  that  a  very  seri- 
ous objection  to  holdinglegal-tender  notes  in  the  Treasury — the  people's 
demand  that  they  be  paid  out  ? 

Mr.  r>CKELS,  Yes.  I  think  this,  Mr.  Cox,  that  if  in  connection  with 
your  suggestion  there  was  a  law  upon  the  statute  books  that  these 
demand  obligations  of  the  (xovernment  could  be  used  as  a  basis  of 
banking  and  that  when  a  bank  went  out  of  the  system  the  Government 
should  redeem  and  permanently  cancel  them,  or  when  there  was  a 
reduction  of  the  circulation  of  the  banks  that  so  much  of  the  demand 
obligations  held  by  that  bank  as  were  affected  by  the  reduction  could 
be  i):iid  and  canceled,  the  difficulty  on  the  score  mentioned  by  you 
would  be  obviated. 

^Ir.  C(ix.  Of  course,  the  idea  is  to  prevent  them  from  getting  back 
again  and  going  into  the  Treasury.     That  is  the  object. 

Mr.  Eckels.  That  I  sui)i)ose  would  be  a  practical  thing,  but  it  is 
already  an  admission  that  the  further  maintenance  of  these  issues  is  a 
wrong  thing. 

Mr,  Cox.  1  must  say,  with  due  respect,  I  can  not  see  any  difference 
in  banking  on  the  promise  of  the  Government  to  pay  in  the  shape  of 
greenbacks  and  the  promise  of  the  Government  to  pay  in  the  shape  of 
bonds. 

Mr.  Eckels.  Except  this,  a  Government  bond  runs  for  a  definite 
period  of  time,  payable  at  su(;h  a  tiuje,  while  under  the  existing  law  the 
legal-tender  note  is  a  continuing  obligation  which  is  never  permanently 
redeemed  and  canceled. 

Mr.  Cox.  That  is  true,  but  it  is  assumed  the  bonds  will  be  paid,  and 
that  you  have  then  got  nothing  upon  which  to  base  your  circulation. 

BONDS   AS   A  BASIS  FOR   CIRCULATINCr  NOTES. 

Mr.  JouNSON.  What  is  your  opinion  of  the  bond  security  under  the 
present  national  banking  law  f  Do  you  think  it  ought  to  be  perpetuated 
in  any  new  system  of  banking  and  currency  which  may  be  devised,  and 
if  not,  what  Avould  you  suggest  for  a  substitute  which  would  give  a  safe 
circulating  note? 

Mr.  Eckels.  I  think  as  a  correct,  scientific  banking  principle  the 
issuing  of  bank  notes  against  bonded  securities  is  erroneous.  Anything 
which  makes  the  volume  of  circulation  depend  upon  reasons  other  than 
the  needs  of  business,  and  which  regulates  it  in  any  other  wise  than 
through  the  daily  needs  of  business  and  commerce,  is  not  a  true  bank- 
ing i)rincii)le. 

Ml-.  Cooke.  Does  not  the  element  of  good  security  come  in  there,  of 
necessity? 

M]-.  Eckels.  Of  course  there  is  that,  but  in  all  the  bills  which  have 
been  given  me  the  fact  is  recognized  that  the  people  of  this  country  are 
used  iu)w  onlv  to  bank  notes  issued  against  securities.  Mr.  ^^'alker's 
bill,  Mr.  JlilFs  bill,  Mr.  Cox's  bill 

The  Chairman.  Mine  provides  a  guaranty  of  the  Government. 

Mr.  LIiLL.  1  have  an  optional  feature  in  the  last  bill  presented. 

bank    notes   issued   against   CREDIT. 

Mr.  Eckels.  Some  of  the  bills  have  introduced  both  the  element  of 
note  issues  against  security  and  that  of  note  issues  against  credits.    I 


FINANCIAL    AND    BANKING    SITUATION.  243 

tbiiik  that  as  a  practical  feature  of  any  banking-  law  wliicli  is  to  be  pre- 
sented to  Congress  you  will  have  to  recognize  certain  conditions  and 
habits  of  mind  which  prevail  in  this  country.  Tliese  conditions  will 
have  to  be  observed  in  order  to  make  any  bill  accei)ted  by  the  public 
and  the  bank  notes  issued  by  virtue  of  it  given  complete  contidence. 
The  majority  of  men  in  business  now  do  not  know  anything  about  a 
bank  note  in  this  country  except  as  it  is  a  secured  bank  note.  There- 
fore I  think  at  the  outset  there  will  have  to  be  maintained  securities 
against  the  largest  portion  of  the  issue  of  notes  or  else  a  (iovernment 
guaranty  as  good  as  a  bonded  security.  And  then,  in  adtlition  to  this, 
for  the])urpose  of  giving  ])lay  towhat  is  termed  the  necessary  elasticity 
of  the  currency,  there  could  be  very  properly  issued  a  certain  i)ercentage 
of  notes,  regulated  by  a  tax,  against  tlie  credit  of  the  bank. 

Mr.  Johnson.  Over  and  above  the  amount  of  security? 

Mr.  Eckels.  Yes;  over  and  above  the  amount  of  security. 

Mr.  McCleary.  An  emergency  feature? 

Mr.  Eckels.  It  might  be  taken  out  at  any  time  the  banks  would  be 
willing  to  pay  tbe  tax. 

Mr.  FowLEK.  Is  it  not  true,  as  years  come  and  go,  that  such  notes 
would  normally  and  naturally  be  needed  for  all  the  more  sparsely  occu- 
pied regions  of  the  country  and  might  not  at  all  be  needed  where  there 
is  a  large  amount  of  money  deposited" 

BANKS  ARE  CONDUCTED  FOR  PROFIT. 

Mr.  Eckels.  In  preparing  any  banking  bill  I  think  as  a  practical 
thing  it  must  be  considered  whether  or  no  it  will  be  generally  adopted. 
It  would  be  difficult  to  have  it  successful  if  it  is  not  acceptable  to  the 
banking  interests  which  it  is  ])roposed  shall  go  into  the  system.  There 
is,  of  course,  much  talk  about  the  prejudice  of  the  people  against  banks 
and  against  banking  interests,  but  the  fact  is  the  business  of  this  coun- 
try is  conducted  through  its  banks.  These  banks  are  not  institutions 
conducted  in  whole  or  in  part  for  pliilanthropic  purposes  any  more  than 
any  other  business  enterprises.  The  men  who  go  into  the  banking 
business  go  into  it  because  there  is  for  them  a  margin  of  profit  in  it, 
and  they  go  out  of  it  whenever  there  is  no  margin  of  profit,  just  as  a 
man  goes  into  the  grocery  business  when  there  is  profit  in  so  doing, 
and  goes  out  of  it  when  there  is  no  profit. 

Mr.  Black.  I  would  like  to  ask  this  question:  As  I  understand  it, 
in  your  opinion  the  impairment  of  the  Government's  credit  during  these 
periods  of  agitation  has  contributed  more  than  any  other  one  cause  to 
the  present  condition? 

Mr.  Eckels.  Yes;  that,  in  my  view,  has  been  the  cause  which  has 
brought  to  a  head  all  these  other  things. 

Mr.  Black.  How  does  that  consist  with  the  fact  that  whenever  the 
Government  has  offered  its  obligations  they  have  been  disposed  of  at 
very  good  rates?     Is  the  Government's  credit  very  seriously  impaired? 

Mr.  Eckels.  In  the  mind  of  the  general  public,  especially  people  who 
are  dealing  with  us  abroad,  there  was  seriously  a  doubt  as  to  whether 
the  Government  could  maintain  the  indefinitely  repeated  ])ayment  of 
gold  for  its  demand  obligations. 

Mr.  Black.  Has  there  ever  been  a  period  when  those  people  hesitated 
to  take  the  Government  obligations  at  reasonable  rates  ? 

Mr.  Eckels.  Oh,  no.  I  think  the  people  generally  have  been  willing 
to  accept  the  bonded  obligations  of  the  Government  because  they  ran 
for  a  definite  period  of  time.  There  is  a  great  difference  as  to  whether 
the  Government  twenty  years  from  now  can  put  itself  in  condition 


244  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Cooke.  There  is  another  elenieut — they  pay  an  income! 

Mr.  Eckels  (continuing).  To  meet  the  bonds  payable  at  that  time 
and  whether  itcau  to-morrow,  with  sl()(),()00,()0()  of  oold  in  the  Treasury, 
redeem  more  than  $480,000,000  of  demand  obhgatioiis  if  they  were  all 
presented.  This  dillerence  is  accentuated  by  the  knowledge  that  the 
payment  of  a  bond  means  payment  and  cancellation,  while  the  payment 
of  a  demand  obligation  of  the  Government  under  the  law  means  but 
the  necessary  preparation  to  start  it  out  again  to  be  returned  for  repay- 
ment, and  so  on  indefinitely. 

Mr.  Black.  You  make  a  distinction  between  demand  and  bond  obli- 
gations? 

Mr.  Eckels.  As  affecting  the  credit  of  the  Government,  yes. 

SILVER    REDEEMABLE    IN    GOLD. 

Mr.  Black.  After  you  had  retired  the  greenbacks,  would  you  make 
the  silver  we  now  have — I  am  not  speaking  now  of  any  further  coinage 
of  silver,  but  would  you  make  the  silver  we  now  have  redeemable  in 
gold? 

Mr.  Eckels.  I  do  not  see  how  the  Government  could  do  anything 
different  as  long  as  it  declares  through  legislative  enactment  it  is  the 
policy  of  the  Government  to  maintain  the  i)arity  of  the  two  metals. 

Mr.  Black.  Then  you  would  make  the  silver  they  now  have  redeem- 
able in  gold  ? 

Mr.  Eckels.  I  think  it  is  incumbent  upon  our  Government  to  main- 
tain the  parity  of  the  two  metals. 

Mr.  Cooke.  If  the  impairment  of  the  confidence  of  the  country  and 
of  the  world  in  our  currency  brought  about  or  started  the  working  of 
this  endless  chain,  why  did  not  that  occur  during  the  fourteen  years 
from  1878  on,  when  we  were  buying  this  enormous  quantity  of  silver? 

Mr.  Eckels.  For  the  simple  reason,  Mr.  Cooke,  that  at  that  time 
there  were  but  $346,000,000  of  demand  obligations  of  the  (xovernment 
which  in  the  public  mind  were  redeemable  ui)on  demand  in  gold,  while 
by  1893  there  had  been  added  $152,000,000  more,  without  any  increase 
in  the  means  or  improvements  in  methods  of  meeting  the  increased 
liabilities. 

Mr.  Cooke.  Your  idea  is  that  there  was  a  culmination  of  the  condi- 
tions which  is  api)licable  to  it? 

Mr.  Johnson.  And  the  act  of  1890  had  been  passed. 

Mr.  Eckels.  Y'es;  but  it  is  known  that  from  the  passage  of  the 
Bland- Allison  act  there  had  been  more  or  less  discussion  of  the  ability 
of  the  Government  to  maintain  itself  and  to  maintain  its  silver  at  a 
parity  with  gold. 

Mr.  FowLKR.  The  terms  of  that  act  did  not  provide  they  should  be 
redeemed  in  coin. 

Mr.  Johnson.  The  gold  in  the  Treasury  fell  off  perceptibly  after  the 
passage  of  the  act  of  18!)0 ;  that  is,  receipts  of  gold  for  duties  on  imports? 

HOARDING   GOLD. 

Mr.  Eckels.  For  the  reason,  among  other  things,  that  people  pre- 
ferred to  hold  or  hoard  their  gold. 

Mr.  Cooke.  Why  did  they  ])refer  that? 

Mr.  Eckels.  For  the  sim])le  reason  that  they  knew  if  they  had  a 
gold  dollar  it  was  a  gold  dollar,  and  if  tliey  had  a  paper  demand  for  a 
dollar  in  coin  they  did  not  know,  in  the  lirst  instance,  whetlier  the 
Government  would  have  the  gold  with  which  to  redeem  it,  and  iu  the 


FINANCIAL    AND    BANKING    SITUATION.  245 

second  instance  they  did  not  know  but  that  it  might  be  redeeined  in  silver 
worth,  without  a  gold  support,  but  50  cents.    , 

Mr.  Johnson.  The  demand  for  the  redemption  of  notes  by  the  Treas- 
ury commenced  during  the  last  year  and  a  half  of  Mr.  Harrison's 
Administration,  did  it  not? 

Mr.  Eckels.  It  commenced  immediately  after  the  passage  of  the 
Sheinian  silver  act.  But,  Mr.  Chairman,  the  fact  is,  when  that  bill  was 
under  discussion  there  was  not  a  prominent  financier  in  luirope  and 
scarcely  one  in  this  country  who  did  not  discuss  the  question  and  point 
out  how  disastrous  the  outcome  would  be.  Some  of  the  foreign  corre- 
spondents, particularly  one  of  the  German  correspondents  for  one  of 
the  leading  papers  in  Berlin,  pointed  out  to  a  certainty  the  thing  which 
actually  came  to  pass,  namely,  that  within  three  years  the  law  would 
so  work  as  to  produce  a  fall  in  the  price  of  silver,  an  impairment  of 
American  credit,  and  a  widespread  panic.  The  actual  fact  is  that  at 
the  time  of  the  contract  with  the  syndicate  for  a  bond  issue — a  b<md 
issuewhicli  has  been  more  criticised  than  any  other  made  by  this  Admin- 
istration— there  was  but  $8,000,000  of  gold  coin  at  the  command  of  the 
Treasury.  With  such  an  extreme  state  of  affairs  it  was  no  wonder  the 
I)eople  thought  the  Government  was  not  going  to  be  able  to  maintain 
the  parity  of  the  two  metals. 

Mr.  Spalding.  There  was  no  raid  the  next  day  after  the  contract  was 
made  ? 

Mr.  Eckels.  No,  for  it  was  known  the  preventive  measure  had  been 
taken. 

FISCAL  OPERATIONS  CAN  NOT  BE  CONDUCTED  ON  SENTIMENT. 

In  this  connection  permit  me  to  say  that  a  great  Government's  fiscal 
operations  can  not  be  conducted  simply  upon  patriotism.  They  can  not 
be  conducted  upon  sentiment,  either.  The  Government  has  no  right  to 
put  itself  in  a  position  where  it  is  either  a  mendicant  asking  aid  from 
outsiders,  or  a  weakling  at  their  mercy.  You  may  think  and  I  may 
think  it  is  a  bad  thing  of  those  who  have  demand  obligations  at  home 
to  present  them  at  a  time  when  the  Government  is  embarrassed,  yet, 
from  a  business  point,  they  are  not  to  be  blamed.  The  Treasury  De- 
partment ought  always  to  be  in  such  a  condition  that  it  would  not 
depend  upon  sentiment,  would  not  depend  upon  patriotism,  and  would 
not  find  it  necessary  for  its  i)rotection  to  have  the  citizen  eliminate  all 
the  elements  of  selfishness  when  he  comes  to  deal  with  it.  It  ought  to 
be  exactly  on  the  same  footing  as  any  other  business  establishment, 
ready  and  willing  to  pay  the  (jovernment's  debts  without  asking  leni- 
ency from  any  of  its  creditors.  It  certainly  ought  not  to  insist  on  fur- 
nishing the  means  for  its  own  destruction  voluntarily  and  then  complain 
if  those  means  are  employed  and  danger  is  threatened. 

Mr.  Hill.  You  were  considering  the  question  of  a  bond  guaranty  for 
currency.  So  far  as  that  guaranty  is  concerned,  which  would  be  the 
best  guaranty,  currency  or  b(mds,  if  such  a  system  is  to  be  adopted? 

Mr.  Eckels.  Well,  I  think  it  amounts  to  the  same  thing.  There  is 
no  difference.  Both  depend  for  safety  upon  the  financial  ability  and 
willingness  of  the  Government  to  maintain  its  obligation. 

Mr.  Hill.  There  is  a  difference  between  a  demand  guaranty  based 
on  a  Government  debt,  the  actual  bond  of  the  United  States  Govern- 
ment  

Mr.  Eckels.  Only  as  I  have  explained,  a  technical  one,  so  far  as 
security  to  the  note  holder  is  concerned. 


246  FINANCIAL    AND    BANKING    SITUATION. 


THE    CANADIAN    SYSTEM. 

Mr.  Hill.  There  is  a  guaranty  iii  Canada,  is  there  nof? 

Mr.  Eckels.  The  conditions  here  are  difilerent  from  the  conditions  in 
Canada.  The  Canadian  system,  wliile  very  good  in  Canada,  would 
recjuire  a  good  many  amendments  to  apply  here.  Here  banking  would 
necessarily  deal  with  a  larger  territory  and  a  great  many  more  interests. 

Mr.  Spalding.  Would  you  deem  it  advisable,  in  the  event  of  an 
extension  of  circulation  to  tlie  par  value  of  the  bonds  under  the  present 
banking  system,  that  they  should  be  compelled  to  keep  out  a  certain 
amount  of  circulation"? 

DETERMINING  THE  VOLUME  OF  CURRENCY  NEEDED. 

Mr.  Eckels.  ISTo;  I  thiidv  that  is  also  erroneous.  It  seems  to  me  it 
must  be  recognized  that  if  the  banks  are  to  issue  the  currency  they 
must  themselves  determine  how  much  of  a  volume  is  needed  from  time 
to  time.  The  banks  can  always  be  depended  upon  to  keep  out  every 
dollar  they  can  use  profitably.  They  can  only  use  a  dollar  profitably 
when  the  people  want  it  and  have  security  to  give  to  obtain  the  loan  of 
it.  Thus  any  law  which  established  a  hard  and  fast  line  as  to  how 
much  the  banks  shall  keep  out  would  defeat  the  very  purpose  which  it 
is  desirable  to  reach  through  a  banking  law.  Under  the  operations  of 
it,  it  is  impossible  to  have  the  currency  issued  to  meet  the  varying 
wants  of  trade  and  commerce  from  day  to  day. 

Mr.  Cox.  I  want  to  call  your  attention  to  this  thought.  I^ow,  it  is 
admitted,  and  there  is  no  way  of  avoiding*  it,  that  the  duty  of  the 
United  States  Government  under  the  present  system  would  be  to 
redeem  the  silver  in  gold  if  it  is  demanded. 

Mr.  Eckels.  I  think  so;  1  do  not  think  there  is  any  question  about 
that. 

Mr.  Cox.  There  is  no  doubt  about  that? 

Mr.  Eckels.  No. 

Mr.  Cox.  You  issue  bonds  as  you  take  up  these  demand  notes  and 
cancel  them.  You  think  that  would  obviate  the  necessity  of  keeping 
any  reserve  for  the  redemption  ?  Now,  let  me  call  attention  to  this  fact, 
would  not  you  be  under  the  necessity  of  holding  a  reserve  for  the 
redemption  of  the  silver? 

Mr.  Eckels.  I  w^ould  not  say  it  would  obviate  all  the  necessity,  but 
1  think  if  you  made  a  beginning,  showing  that  the  policy  of  the  Gov- 
ernment was  to  curtail  these  issues  instead  of  following  the  policy  of 
increasing  them,  it  would  go  a  long  way  toward  ridding  the  country  of 
the  dilUculty. 

Mr.  Cox.  You  do  not  think  it  would  be  complete?. 

legal    TENDER    RETIREMENT    THE    FIRST    STEP    TOWARD    RELIEF. 

Mr.  Eckels.  No;  I  think  it  would  be  sim])ly  a  step.  The  country 
has  gotten  itself  into  a  very  bad  situation,  and  some  time  it  must  make 
a  start  in  the  right  directio)i  to  get  out  of  it.  The  first  stej)  to  that  end 
would  be  to  pay,  retire,  and  cancel  legal  tenders,  and  then  give  to 
the  banks  the  right  of  issuing  all  credit  currency.  The  right  to  issue 
should  carry  with  it  and  place  upon  the  banks  the  duty  of  redeeming 
in  gold  the  obligations  which  they  put  forth. 

Mr.  McCleary.  1   come  back,  as  you  have  the  happy  faculty  of 


FINANCIAL   AND   BANKING    SITUATION.  247 

expressing-  things,  to  the  elementary  question,  and  in  asking  it  I  put 
a  (luestion  which  is  in  the  minds  of  thousands  of  people  who  are  study- 
ing this  question  and  who  have  not  an  opportunity  to  ask  it  of  you 
themselves.  Wherein  is  the  difit^rence  between  your  bank  redemption,  if 
it  is  a  demand  obligation,  and  the  Government  redemption,  if  it  is  a 
demand  obligation  ? 

CREDIT   CURRENCY. 

Mr.  Eckels.  -The  only  difference  is  that  it  is  not  the  business  of  the 
Government,  nor  is  it  wise  for  it,  to  issue  credit  currency.  Ko  Govern- 
ment has  ever  yet  successfully  done  so.  As  stated  by  Mr.  Walker, 
when  there  is  placed  in  the  hands  of  the  Treasury  Department,  in  a 
Congressional  enactment,  the  issuance  of  credit  currency  it  is  made  a 
continual  subject  of  Congressional  legislation.  Through  the  operation 
of  such  a  law  there  is  created  in  the  minds  of  people  the  idea  that 
somehow  the  Government  can  create  values.  It  is  made  possible  to 
have  issued  a  volume  of  currency  which  would  be  so  large  in  volume 
that  the  Government  would  not  be  able  to  redeem  it.  If  it  is  taken  from 
institutions  which  are  organized  with  all  the  machinery  for  regulating 
the  volume  and  providing  for  its  redemption,  a  function  which  experi- 
ence has  shown  they  best  are  able  to  meet,  and  given  to  the  Govern- 
ment without  such  machinery,  it  becomes  a  question  of  doubt  whether 
in  the  continuing  change  of  political  parties  there  will  not  always  be  a 
change  in  the  amount  of  currency  to  be  issued  or  the  amount  to  be 
retired,  and  the  character  and  value  of  the  same. 

Mr.  McCleary.  Then  the  difference  is  circumstantial  rather  than 
essential  ? 

Mr.  Eckels.  The  difference  is  circumstantial,  but  the  circumstances 
are  so  strong  that  the  history  of  all  financial  operations  demonstrates 
that  no  Government  has  ever  successfully  accomplished  it.  Whenever 
Governments  have  undertaken  it  the  end  has  always  been  a  loss  to  the 
people. 

The  Chairman.  Let  me  ask  this  question.  You  said  this  is  circum- 
stantial. I  want  you  to  elaborate  that,  because  those  words  alone  would 
be  entirely  misleading. 

Mr.  Eckels.  If  you  will  state  your  question,  Mr.  Walker? 

The  Chairman.  Is  it  not  a  fact  that  there  is  no  conceivable  way  for 
a  Government  to  issue  currency  directly  except  by  purchasing  things 
that  the  Government  consumes  in  some  form"? 

Mr,  Eckels.  Yes,  that  is  true. 

The  Chairman.  Secondly,  when  a  bank  issues  currency,  instead  of 
buying  something  it  sells  something,  or  rather  it  sells  and  buys ;  it  sells 
something — its  capital — for  a  greater  sum  than  it  buys  the  same  thing- 
back  for  at  a  subsequent  period.  Is  it  not  a  fact  that  Avhen  a  bank 
issues  currency  it  has  on  the  property  of  the  signer  and  indorser  of  the 
note  for  from  $10  to  $100,  or  any  sum,  a  guarantee  for  the  return  to  it  of 
a  larger  sum  than  it  sells,  and  uses  the  payment  directly  or  indirectly 
to  redeem  the  very  thing,  while  the  (iovernment  has  nothing  to  redeem 
with"?     The  Government  has  consumed  it  in  salaries,  etc.? 

Mr.  Eckels.  Yes,  I  think  that  is  so. 

The  Chairman.  So  that  the  bank  has  a  larger  sum  to  redeem  its 
notes  whenever  they  come  to  be  redeemed  than  it  gave  when  it  gave 
them  out,  and  the  Government  has  absolutely  nothing? 

Mr.  Eckels.  Yes,  I  think  that  is  so. 

The  Chairman.  Those  are  the  circumstances  to  which  you  refer? 


248  FINANCIAL   AND   BANKING    SITUATION. 

Mr.  Eckels.  And  the  other  circumstaiice  which  is  a  factor  is  the 
circumstance  of  the  bank  liaving  the  machinery. 

The  Chairman.  The  bank  has  the  machinery  and  has  the  wealth  to 
redeem  the  notes. 

Mr.  Eckels.  There  is  another  i)oint  to  be  considered.  With  all  due 
deference  to  the  ability  of  those  who  have  to  do  either  with  the  making 
of  the  laws  or  those  who  have  to  do  with  the  administration  of  tbeni 
in  the  Treasury  Department,  legislators  and  Treasury  officials  have 
not  all  the  required  facilities  for  knowing  the  amount  of  currency 
needed  and  the  time  at  which  it  is  needed,  that  the  banking  institutions 
of  tlie  country  have.  These  institutions  are  not  massed  in  a  single 
locality,  but  are  located  in  every  portion  of  the  country. 

Mr.  McCleary.  That  is  a  part  of  the  circumstances! 

Mr.  Eckels.  That  is  one  of  the  circumstances  and  one  of  the  strong 
facts. 

Mr.  McCleary.  I  did  not,  perhaps,  make  my  question  clear  to  you. 
Granting  the  fact  that  there  is  a  certain  issue  of  demand  loans  out- 
standing, granting  something  arises  to  call  for  redemption  of  those 
demand  notes,  where  is  the  redemption  by  the  bank  different  from  and 
better  than  the  redemi)tion  by  the  Government  ? 

NOTE   ISSUING   NOT   A  FUNCTION   OF   GOVERNMENT. 

Mr.  Eckels.  Simply  this,  Mr.  McCleary,  the  banks  can  better  pro- 
tect themselves  than  the  Government.  The  Government  to  protect 
itself  must  go  through  all  the  details  of  issuing  bonds,  the  advertising 
of  its  impoverished  condition,  the  stirring  up  of  people  on  the  subject 
of  the  creation  of  unnecessary  debt,  the  substituting  of  an  interest- 
bearing  debt  for  what  they  term  a  nouinterest-bearing  one,  and  the 
making  of  a  political  issue  out  of  a  business  proposition  and  necessity. 
I  do  not  believe  note  issuing  is  one  of  the  functions  which  the  Govern- 
ment can,  for  the  best  interest  of  the  people,  properly  exercise.  There 
are  many  functions  of  government  which  State  and  city  corporations 
deriving  their  power  from  the  people  might  rightfully  exercise,  but 
which, for  purposes  of  public  policy  and  for  the  purpose  of  contributing 
to  the  best  interest  of  the  individuals,  they  grant  to  corporations  or 
individuals  who,  under  the  circumstances,  can  better  carry  them  out. 
Undoubtedly  circumstances  might  arise  where  a  city  could  do  better  if 
it  maintained  its  own  electric-light  or  gas  plant.  There  are  other  cir- 
cumstances which  Mould  arise  whicli  would  make  it  unprofitable  for  a 
city  to  go  into  this  sort  of  thing.  As  a  rule,  however,  it  seems  to  me 
the  business  of  the  Government  is  to  do  only  those  things  which  can 
not  best  be  done  by  the  individual,  either  in  his  individual  capacity  or 
through  created  corporations. 

The  Chairman,  l^et  me  ask  one  question.  Is  it  not  a  fact  that  the 
Government  can  not  successfully  issue  greenbacks,  paper  money,  unless 
it  does  all  the  other  things  that  banks  do  and  which  make  it  safe  for 
banks  to  do  it  ? 

the  government  as  a  banker. 

Mr.  Eckels.  Yes,  I  do  not  think  there  is  any  question  about  it.  The 
Government  to  do  these  things  successfully  must  have  of  its  Treasury 
T)ei)artment  a  complete  bank.  See  what  this  Government  has.  This 
Government  has  a  Treasuiy  Department  issuing  its  promissory  notes 
like  a  bank  of  issue  without  the  Secretary  of  the  Treasury,  its  governing 


FINANCIAL    AND    BANKING    SITUATION.  249 

power,  beinj?  given  unquestioned  power  in  law  to  redeem  tliein  or 
protect  the  Treasury's  credit.  ]\Iore  tliau  once  the  point  lias  been  raised 
in  Congress  that  he  has  no  legal  right  t<»  issue  bonds  ibr  such  puri)Ose, 
and  the  same  thing  was  seriously  discussed  in  more  than  one  speech 
during  the  last  campaign.  TTpon  the  one  hand,  it  thus  appears  that  the 
Government  is  a  bank  of  issue  deuied  essential  powers,  win  Icon  tlie  other 
it  is,  because  of  the  subtreasury,  a  bank  of  deposit  eciually  dciicient  in 
every  necessary  essential  to  such  a  bank.  J t  takes,  through  this  system, 
out  of  the  channels  of  trade  and  commerce  large  sums  of  money  every 
day  and  locks  them  up.  Jt  does  not  disburse  these  sums,  as  banks  of 
deposit  do,  and  in  consequence  works  a  dangerous  congestion  and  con- 
traction of  needed  funds,  which  not  infrequently  must  be  disbursed  at 
great  loss  to  the  Treasurj^  When  the  note-issuing  functions  of  the 
Government  are  vested  in  institutions  created  for  the  purpose  of  deal- 
ing in  debts,  lending  credit,  obtaining  credit,  maintaining  credit,  and 
issuing  and  redeeming  bank  notes,  much  has  been  accomplished,  but 
the  advance  can  be  nuide  still  greater  by  abolishing  tiie  subtreasury 
and  having  the  fiscal  operations  of  the  Government  conducted  in  a  way 
that  does  not  arbitrarily  take  out  of  the  needs  of  commerce  the  hirge 
sums  which  it  now  does. 

As  it  is  to-day,  I  repeat,  the  Government's  Treasury  is  a  bank  of  note 
issue  without  a  single  element  of  note-issue  power  necessary  to  the  nmin- 
tenance  of  it,  and  a  bank  of  deposit  without  a  single  essential  element 
to  a  bank  of  deposit.  As  a  result  of  these  two  features  the  Govern- 
ment's fiscal  operations  have  become  the  largest  factors  in  the  private 
fiscal  o])erations  of  every  private  individual.  iSTo  private  individual  in 
this  country  undertakes  to  conduct  large  operations  until  he  has  tried  to 
ascertain  what  the  Government  is  going  to  do  in  its  financial  operations. 

Mr.  Fowler.  If  you  will  allow  me,  I  do  not  think  you  just  answered 
the  point  Mr.  McCleary  wanted  to  cover,  and  tliat  is,  why  can  the  banks 
better  maintain  these  redemptions  than  the  Government,  and  the  point, 
as  I  understand  his  question,  is  this,  that  if  the  Government  has 
$100,000,000  of  gold  to  nmintain  $500,000,000,  the  banks  to  maintain 
the  $500,000,000  must  have  $3,000,000,000  of  the  assets  of  the  banks? 

Mr.  Eckels.  I  think  that  is  embodied  in  the  reply  that  they  have 
the  machinery  for  doing  it  and  the  Government  has  not. 

The  Chairman.  It  has  the  wealth. 

Mr.  Eckels.  Wealth  is  part  of  that  machinery. 

The  Chairman.  Wealth  is  the  machinery — the  various  forms  of 
wealth. 

Mr.  Fowler.  Machinery  produces  wealth. 

Mr.  McCleary.  If  they  did  not  have  the  gold  they  would  have  to 
get  it. 

Mr.  Eckels.  They  could  get  it  because  they  have  the  means  which 
causes  those  who  have  the  loanable  and  investable  capital  to  believe 
and  know  that  that  money  which  they  are  asked  to  loan  to  the  banks 
will  be  returned  to  them. 

Mr.  Cooke.  Look  at  it  in  this  light.  Suppose  there  was  a  strong 
tendency  of  gold  to  leave  the  country,  can  the  bank  get  hold  of  that 
gold  easier  than  the  Federal  Government,  assuming  that  the  volume  of 
export  is  going  to  be  largely  of  gold  ? 

Mr.  Eckels.  Yes;  for  the  reason  that  the  banks  can  immediately 
offer  to  those  who  are  to  come  into  possession  of  that  gold,  or  who  are 
obtaining  it,  a  rate  of  interest  which  makes  it  more  to  their  advantage 
to  keep  the  gold  here  than  to  send  it  abroad. 


250  FINANCIAL    AND    BANKING    SITUATION. 

GOLD    GOES   WHERE    IT    18   NEEDED. 

The  Chairman.  I  want  to  call  j^onr  attention  to  a  fact,  in  order  to 
base  my  question  upon  it,  that  of  the  imports  and  exports  of  gold,  not 
having  the  effect  to  protect  the  balance  of  trade,  so  far  as  England  is 
concerned,  or  any  foreign  country,  so  far  as  we  know,  in  1887  we 
increased  our  gold  holdings  here  $60,000,000;  in  1888  we  increased  it  by 
$58,000,000;  in  1889  we  lost  $18,000,000;  in  1890  we  gained  827,000,000; 
in  1891,  the  next  year,  we  lost  $34,000,000 ;  in  1892  we  gained  833,000,000 ; 
in  1893,  the  year  of  the  panic,  we  lost  $57,000,000,  and  the  next  year  we 
gained  $35,000,000.  In  those  six  years  we  lost  $103,500,000,  and  we 
gained  $95,500,000,  which  shows  we  only  lost  during  those  years  about 
$8,000,000  of  gold,  and  we  have  gained  in  1895  and  1896  very  many 
times  more.  Xow,  I  want  to  ask  if  it  is  not  a  fact  that  it  certainly  will 
return  when  there  is  an  economic  demand,  without  any  reference  what- 
ever to  trade  or  trade  balances  f  Does  it  not  always  go  to  those  places 
where  the  rates  of  interest  are  above  the  normal  and  leave  those  places 
where  the  rates  are  below  the  normal?  Is  not  that  shown  by  the  expe- 
rience of  the  Bank  of  England  ? 

Mr.  Eckels.  There  may  be  other  circumstances 

The  Chairman.  I  am  supposing  circumstances  to  be  equal  as  to 
confidence. 

Mr.  Eckels.  Circumstances  being  equal  as  to  credits. 

The  Chairman.  As  to  the  confidence  in  its  return  and  the  rate  of 
interest,  the  rate  of  interest  settles  it "? 

Mr.  Eckels.  There  may  be  exceptional  cases. 

The  Chairman.  Did  you  ever  hear  of  onef 

Mr.  Eckels.  Where  the  gold  does  not  go  to  the  place 

The  Chairman.  Which  has  the  higher  rate  of  interest? 

Mr.  Eckels.  I  suppose  there  may  be  cases,  but  as  a  general  rule  it 
goes  to  the  iilace  where  the  rate  of  interest  ottered  is  the  highest  and 
where  the  i^robabilities  of  its  returns  are  best. 

SCARCITY   OF    CURRENCY    IN   RURAL   SECTIONS. 

Mr.  Johnson.  I  want  to  ask  a  question  on  another  branch  of  the  sub- 
ject. There  are  certain  sections  of  the  country  known  as  the  rural  or 
agricultural  sections  where  there  is  a  great  scarcity  of  money  with  which 
to  ett'ect  the  ordinary  exchanges  of  the  people  and  where  at  certain  sea- 
sons of  the  year  known  as  the  "  crop  moving  periods"  money  can  not 
be  obtained  for  marketing  the  crops,  exce])t  with  great  difficulty  and  at 
a  very  high  rate  of  interest.  l!^ow,  what  I  want  to  ask  you  is,  do  you 
hold  the  banking  and  currency  system  in  any  degree  responsible  for 
this ;  and  if  so,  what  remedy  would  you  suggest  1 

BRANCH   banks. 

Mr.  Eckels.  I  do  not  think  that  the  baidcing  and  currency  condi- 
tions of  the  country  are  so  much  responsible  fi)r  that,  as  1  believe  the  peo- 
ple lack  ciedit  or  tlie  means  and  channels  tlirough  whicli  to  obtain  credit. 
Mr.  Gallatin,  Secretary  of  the  Treasury,  said,  when  some  one  spoke  of 
the  lack  of  money,  such  ])ersons  generally  meant  that  for  them  there 
was  a  lack  of  credit,  or  else  they  had  not  the  thing  which  entitled  them 
to  credit.  There  are  many  sections  of  the  country  which  ought,  with 
tliat  M'hich  they  have,  to  obtain  credit,  but  they  have  not  the  means  of 
having  the  fact  brought  to  the  attention  of  those  who  have  loanable 


FINANCIAL    AND    BANKING    SITUATION.  251 

money.  I  would  reach  these  classes  by  the  branch  banks  which  would 
do  a  deposit  aud  discount  business.  Very  many  of  them  can  not  be 
reached  by  independent  banks,  for  many  of  these  communities  have  not 
sufficient  sur]»lus  capital  exclusive  of  the  requirements  of  their  ordinary 
business  needs  to  furnish  the  capital  of  a  bank,  and  therefore  they  must 
depend  upon  having  that  capital  brought  from  the  outside.  Branch 
banks  would  be  the  means  of  importing  such  outside  capital  and  of 
lowering  prevailing  exorbitant  rates  of  interest. 

Mr.  Johnson.  You  know  that  this  scarcity  of  money  prevails  in  some 
sections  of  the  country  where  the  people  have  proi)erty  to  exchange, 
and  where  there  is  a  great  necessity  of  effecting  the  exchanges'? 

Mr.  Black.  Will  you  allow  me  in  that  connection  to  state  as  a  fact 
that  1  know  sections  of  the  country  where,  if  you  go  to  the  bank  with 
its  own  stock,  worth  on  the  market  from  8165  to  $170,  or  with  a  United 
States  bond,  you  have  got  to  pay  8  per  cent  interest  for  money,  when 
in  other  sections  of  the  country  with  the  same  security  you  can  get  it 
for  4  or  5 ! 

Mr.  Johnson.  I  am  told  that  the  rates  are  even  higher  in  some  local- 
ities than  8  per  cent? 

Mr.  Eckels.  That  arises  because  there  is  no  loanable  capital  there. 

Mr.  Spalding.  Is  it  not  a  fact  that  in  large  rural  districts  where 
cotton,  wool,  and  all  farming  products  are  raised,  the  farmer  wants  the 
currency  and  he  takes  the  currency  and  the  currency  becomes  very 
scarce,  and  it  has  to  be  transported  into  those  places  in  order  to  sui)ply 
their  needs ! 

Mr.  Eckels.  There  is  another  reason,  I  think,  that  enters  into  it. 
Mr.  Johnson,  or  some  member  of  the  committee,  said  that  he  knew  of 
a  condition  of  affairs  where  there  were  people  in  a  community  that  had 
very  large  amounts  of  money,  or  individuals  had 

Mr.  Black.  Had  large  amounts  of  security. 

Mr.  Johnson.  Had  property  and  security,  and  wanted  to  effect 
exchanges,  but  there  was  a  scarcity  of  money — the  people  could  not 
get  it. 

Mr.  Eckels.  I  think  the  remedy  for  this  condition  would  be  found 
if  in  communities  where  there  is  a  great  scarcity  of  money — that  is,  no 
single  individual  has  more  than  a  very  little — there  were  banks  estab- 
lished of  deposit  and  discount,  and  the  people  of  such  communities 
used  these  banks  for  the  deposit  even  of  the  small  sums  which  they 
have.  The  aggregate  of  these  would  make  a  large  number  of  dollars, 
each  one  being  in  active  use  at  all  times  instead  of  remaining  idle.  It 
would  soon  come  about  that  instead  of  paying  for  produce  and  property 
by  the  transfer  of  currency  irom  hand  to  hand  they  would  give  in  lieu 
checks  and  credit  instruments.  In  this  way  every  dollar,  instead  of 
bearing  a  single  transaction  would  bear  a  great  many  transactions  and 
become  an  efficient  dollar.  Tliere  are  mnay  things  no  banking  law, 
no  matter  how  excellent,  can  remedy.  Every  new  country  has  to  pass 
through  a  period  of  inconvenience  arising  from  the  lack  of  proper  facili- 
ties for  bringing  about  the  exchange  of  property.  It  is  beyond  the 
power  of  the  law  to  do  at  once  that  which  can  only  come  about  in  time 
and  favoring  j)hysical  conditions.  There  must  always  be  sparsely  set- 
tled communities  which  will  suffer  from  the  inconveniences  which  Mr. 
Black  speaks  of  having  seen  and  of  which  other  members  of  the 
committee  are  cognizant. 

Mr.  Johnson.  What  I  am  trying  to  get  at  is  this.  There  is  undoubt- 
edly a  lack  of  distribution  of  currency  throughout  the  country,  and 
there  are  many  communities,  agricultural  communities,  in  which  there 


252  FINANCIAL    AND    BANKING    SITUATION. 

is  property  wliicli  the  owners  and  holders  desire  to  exchange,  but  they 
have  not  the  money  with  which  to  effect  the  exchanges,  and  there  are 
communities  in  which  at  certain  times  they  want  to  use  a  great  deal  of 
money — for  instance,  they  want  to  make  improvements  out  of  the  usual 
line  or  they  want  to  move  the  crops — and  yet  they  can  not  get  the 
money  except  at  an  extraordinary  rate  of  interest.  Now,  is  not  the 
banking  and  currency  system,  as  it  now  exists,  responsible  for  this 
scarcity  of  money  and  this  high  rate  of  interest? 

Mr.  Eckels.  I  think  not,  except  that  these  people,  if  given  banking 
facilities,  which  I  think  can  ordy  be  given  them  by  branch  banks  or 
banks  of  smaller  capital 

Mr.  Johnson.  What  good  would  it  do  to  offer  such  loc.ilities  a  bank 
or  a  branch  bank  if  there  is  not  suflicient  pros])ect  for  profit  to  induce 
the  people  to  avail  themselves  of  the  offer  and  establish  the  bank  there? 

Mr.  Eckels.  Because  those  branches  would  take  from  the  parent 
bank  the  amount  of  money  needed  in  that  community  to  transact  the 
business.  Such  a  community,  it  would  be  found,  would  not  possess 
capital  to  establish  an  independent  bank,  and  therefore  if  it  was  not 
imported  it  would  be  obliged  to  get  along  without  any  bank. 

Mr.  Johnson.  But  if  there  is  no  profit  on  the  circulation  of  the  notes 
they  would  not 

NO   PROFIT   TO   BANKS   ON   CIRCULATION. 

Mr.  Eckels.  The  profit  of  a  bank  in  this  country  is  not  on  the  cir- 
culating notes;  the  profit  of  a  bank  is  on  the  discounts  and  deposits. 

Mr.  Johnson.  1  know,  but  there  must  be  some  profit  on  the  circula- 
tion of  the  note  in  order  to  induce  the  bank  to  issue  them? 

Mr.  Eckels.  The  branch  banks  would  undoubtedly  circulate  there 
the  notes  of  the  parent  bank  or  gold. 

Mr.  Johnson.  It  is  alleged,  and  justly  alleged,  against  the  existing 
national-bank  law,  is  it  not,  that  it  discourages  the  issue  of  circulating 
notes  by  not  affording  sufficient  opportunities  to  the  banks  for  profit 
on  the  circulation?  What  good,  then,  would  it  do  these  communities 
to  which  I  have  referred  to  establish  national  banks  there,  with  the 
provisions  for  issuing  notes  as  they  now  are?  What  I  am  driving  at  is 
this,  will  not  this  lack  of  money  in  these  agricultural  communities  be 
much  more  likely  to  be  supplied  if  a  system  of  banking  and  currency 
is  devised  whereby  the  issuing  of  the  circulating  notes  by  the  bank  is 
made  less  expensive  to  the  bank  than  it  is  under  the  existing  system? 

Mr.  Eckels.  I  think  that  is  so.  The  fact  that  there  is  no  profit  in 
circulation  is  the  reason  why  the  banks  do  not  take  more  out. 

Mr.  Johnson.  The  more  profit  on  the  circulation  the  more  likely  that 
banks  will  be  established  in  these  localities.  They  are  not  going  to  be 
organized  as  banks  of  issue  when  there  is  no  profit  to  be  made  out  of 
circulation. 

Mr.  Eckels.  But  I  think  if  branch  banks  were  established  they  not 
only  would  bring  in  outside  capital,  but  in  every  community,  no  matter 
Low  poor  it  is,  a  large  amount  of  money  would  go  into  these  banks  as 
deposits  and  thereby  increase  the  loanable  capital  of  that  community 
with  a  corres]»on(ling  reduction  in  interest  charges  to  borrowers. 

Mr.  Fowler.  I  would  like  to  put  a  case  which  has  been  brought  to 
my  attention.  A  gcntlennui  who  was  traveling  in  Iowa  told  me  this 
last  fall  that  they  liad  an  enormous  corn  crop,  a  fabulous  crop,  but  an 
early  frost  came  on  that  (country,  damaging  a  great  ])ortion  of  that  crop, 
making  it  what  we  call  solt,  and  therefore  in  an  unsalable  condition 


FINANCIAL    AND    BANKING    SITUATION.  253 

and  the  only  way  to  save  that  corn  ^yas  to  buy  steers  from  Idaho 
and  such  portions  of  the  country  and  briny  them  into  Iowa  and  feed 
them  with  this  soft  corn,  and  it  was  absohitely  impossible  for  those 
men  to  borrow  any  money  in  the  State  of  Iowa  witli  which  to  buy  the 
cattle  and  feed  them,  altliough  it  Avould  be  the  best  security  in  the 
world,  and  hence  this  immense  crop  of  corn,  so  far,  at  least,  iis  this 
soft  corn  was  concerned,  is  i-otting  to-day  in  the  cribs  of  Iowa,  very 
much  to  the  discontent  of  the  people. 

Mr.  Eckels,  There  are  things  you  can  not  regulate  by  law  and  you 
cannot  make  people  do  by  law.  One  of  the  great  troubles  of  the  coun- 
try to-day  is  that  every  nmn  is  depending  upon  the  law  to  lilt  him  out 
ot'  some  diflQculty  or  is  asking  the  law  to  give  him  some  individual 
advantage.  The  result  is  that  he  is  not  dependent  uj^on  himself,  and 
thus  he  fails  to  make  his  individual  eftbrts  count  for  very  much. 

ISSUING   NOTES   OF   PRIVATE   BANKS. 

Mr.  Fowler.  Let  me  put  the  question.  Suppose  a  farmer  lived  in 
that  place,  and  he  had  1,000  or  r),000  bushels  of  corn,  and  wanted  to  buy 
these  steers,  and  he  could  not  borrow  the  money  from  the  banks  if  he 
were  a  wealthy  man.  Would  it  not  have  been  a  good  exchange  and  to 
the  interest  of  the  private  l)anks  to  have  issued  their  own  notes  for  the 
notes  of  the  men  who  were  in  that  kind  of  business,  and  would  not  the 
notes  have  been  perfectly  safe,  and  would  not  they  thereby  have  saved 
this  vast  corn  crop  of  Iowa  ? 

Mr.  Eckels.  Oh,  yes;  I  think  that  is  probably  so. 

The  Chairman.  Is  it  not  a  fact  that  where  a  bank  issues  its  currency 
free  against  its  assets,  which  was  done  in  the  Suffolk  system  of  New 
England,  with  which  you  are  familiar,  the  currency  earned  a  rate  of 
interest  charged  by  the  bank  issuing-  it  upon  its  loans  and  discounts, 
while  out? 

Mr.  Eckels.  Yes. 

The  Chairman.  Then,  is  it  not  true  that  this  interest  earned  to  the 
banks  lessens  the  rate  of  interest  for  loans  and  discounts  that  the  banks 
are  supposed  to  charge  in  order  to  i^ay  the  same  dividends  on  their  stock? 

Mr.  Eckels.  That  would  seem  to  follow  your  proposition. 

The  Chairman.  Let  me  call  your  attention  to  this  fact,  that  in  185G 
Vermont  issued  currency  through  its  banks  103  per  cent  to  its  capi- 
tal stock,  and  that  was  part  of  the  Suftblk  system.  Now,  if  that  was 
so,  maintaining  its  full  rates  on  loans  and  discounts  it  could  loan  all  its 
other  assets  for  nothing,  except  to  pay  its  expenses  and  to  pay  the  rate 
of  interest  on  its  capital  stock  that  it  received  on  its  loans  and  dis- 
counts, might  it  not — that  follows? 

Mr.  Eckels.  Yes,  that  too  follows  the  statement  you  have  made. 

The  Chairman.  Now,  New  York  city,  in  that  same  time,  only  loaned 
11  per  cent  of  currency  on  its  capital,  it  having  that  in  circulation  only 
because  it  comes  back  to  banks  so  quickly  in  cities.  Now,  is  not  that 
relatively  the  difterence  between  the  ability  and  probability  of  banks 
in  agricultural  districts  being  able  to  keep  their  currency  out,  as  com- 
pared with  banks  in  cities  ?     That  is  true,  is  it  not  ? 

Mr.  Eckels.  I  think  that  conclusion  would  follow  the  jDremises  you 
have  laid  down. 

The  Chairman.  Now,  to-day  it  appears  that  these  same  Vermont 
banks  only  issued  49  per  cent  in  currency  on  their  capital,  and  New 
York  only  7  per  cent.  I  want  to  call  your  attention  to  another  thing. 
In  Vermont,  in  1856,  the  i^ercentage  of  loans  and  discounts  through 


254  FINANCIAL    AND    BANKING    SITUATION. 

banks  to  the  total  of  their  capital  and  deposits  was  115.7  per  cent. 
To-day  tlie  loans  and  discounts  to  the  total  of  their  capital  and  deposits 
are  oiily  79  per  cent,  showing-  that  in  185(3  the  pro])ortion  to  the  capital 
and  deposits  of  loans  and  discounts  was  46i  per  cent  more  than  to-day. 
Is  there  any  doubt  about  that  beinff  a  hardshij)? 

Mr.  Eckels.  I  should  think  in  Vermont,  now.  they  are  able  to  obtain 
all  the  money  they  can  use. 

The  Chairman.  That  is  not  the  question.  The  point  I  make  is  that 
rates  are  relatively  one- third  higher  now  than  in  1856.  Is  it  not  a  fact 
that  all  the  money  that  is  paid  into  the  bank  other  than  it  issues  itself, 
paper  money,  that  its  customers  do  not  want,  but  want  instead  to  use 
drafts  and  checks,  displaces  the  amount  of  their  capital,  that  is,  if  the 
customers  want  to  use  checks,  etc.,  rather  than  currency? 

Mr.  Eckels.  I  do  not  exactly  understand,  Mr.  Walker,  how  you  mean 
it  displaces  this  capital? 

The  Chairman.  I  mean  to  say  it  has  decreased  the  ability  to  loan. 
Now,  in  New  York  in  1856  the  percentage  of  loans  and  discounts  in 
proportion  to  its  capital  and  deposits  was  87.8.  To-day  it  is  06.9,  so 
they  are  loaning  to-day  10.1  more  on  the  same  funds  under  the  present 
system  than  in  1856.  I  bring  this  to  your  attention  to  show  you  the 
banking  system  we  have  is  working  very  great  hardship  on  the  agri- 
cultural districts,  while  it  is  working  a  benetit  to  the  cities  as  compared 
with  the  country. 

FACIHTIES   OF    BANKIiNG   IN   CITIES. 

Mr.  Eckels,  That  is  probably  so.  As  I  have  stated,  the  people  send 
their  money  where  they  can  make  the  most  on  it  and  consider  the 
investment  the  safest.  They  apparently  make  the  most  in  the  cities, 
or  at  least  they  know  that  it  can  always  be  invested  by  those  in  the 
cities  through  the  banking  advantages  which  they  possess. 

The  Chairman.  But  would  not  the  money  be  sent  back?  Under  the 
Suflblk  system  the  money  would  have  immediately  gone  back  tothebanks 
that  issue  it. 

Mr.  Eckels.  Undoubtedly  that  is  so,  if  there  was  a  properly  adjusted 
banking  system.  Give  to  the  country  the  facilities  of  banking  which 
under  proper  restrictions  they  could  maintain,  and  it  would  be  found 
that  a  large  proi^ortion  of  the  money  which  now  goes  to  the  cities  to 
obtain  a  very  small  profit  would  remain  in  the  sections  of  the  country 
where  a  larger  profit  could  be  made.  Money  now  goes  to  the  cities  for 
the  same  reason  it  goes  anywhere  else.  It  goes  there  because  the 
people  who  own  it  know  it  can  be  employed  at  a  certain  rate  of  profit 
and  because  they  have  the  means  of  knowing  it  can  be  so  employed. 
If  other  channels  are  opened,  giving  the  same  means  of  information  as 
to  the  ability  of  those  who  are  going  to  use  it  to  return  that  which  is  bor- 
rowed when  it  is  wanted,  those  sections  of  the  country  will  be  i)rovided 
with  the  money  which  is  unnecessary  and  a  burden  to  the  great  cities. 

The  Chairman,  New  York  has  about  >!6(),000,0(H)  above  its  normal 
reserve.  Is  it  not  a  fact  that  S6(>,0()(),()00  is  in  legal  tenders,  Treasury 
notes,  silver  certificates,  and  that  nothing  can  be  done  with  it,  there  is 
no  place  to  send  them,  but  they  must  keep  them  in  their  banks?  That 
is  true,  is  it  not? 

Mr.  Eckels.  Yes. 

The  Chairman.  Now,  if  every  dollar  of  currency  was  issued  by  the 
banks  themselves,  that  accumulation  never  would  occur,  because  the 
currency  would  have  been  sent  back  to  the  banks  issuing  it? 


FINANCIAL    AND    BANKING    SITUATION.  255 

Mr.  Eckels.  There  is  no  (jueslion  as  to  that. 

The  Chairman.  So  that  under  our  present  system  there  is  no 
machinery  by  which  to  send  this  money  back  into  tlie  country  where 
it  is  needed,  because  it  is  issued  by  the  Government,  and  wherever  it 
drifts  there  it  must  stay;  whereas  if  it  was  issued  by  the  banks,  when 
paid  into  another  bank  it  would  be  immediately  sent  ba(;k  to  the  bank 
that  issued  it.  Again,  does  it  not  follow  necessarily  that  the  banks,  in 
order  to  make  a  profit  on  currency,  would  have  to  seek  out  and  would 
seek  out  for  their  own  self  interest  persons  in  their  community  to  whom 
they  could  loan  it,  and  who  could  use  it,  and  thereby  make  a  profit  to 
the  bank,  Miiich  would  in  fact  result  in  giving  very  nuich  larger  facili- 
ties to  secure  loans  in  the  neighborhood  where  the  bank  was  located, 
because  they  are  obliged  to  loan  to  people  to  make  money  on  their  cur- 
rency, where  they  denied  them  under  the  circumstances  suggested  by 
Mr.  Fowler. 

CONGESTION    OF    CXTRRENCY   IN   NEW   YORK. 

Mr.  Eckels.  I  think  that  the  banks  would  do  so,  but  a  distinction, 
too,  must  be  drawn.  These  large  sums  of  which  complaint  is  made  go 
to  Kew  York  City,  not  because  of  the  legal  tenders  themselves,  and  not 
wholly  because  of  the  present  banking  system.  In  some  measure  the 
fact  that  the  Government  furnishes  the  facilities  for  redemi3tion  of  the 
legal-tender  issues  at  New  York  adds  to  the  drift  of  those  issues  there; 
but  the  great  cause  of  congestion  is  in  the  lack  of  banking  facilities 
elsewhere  through  which  money  could  be  used  more  profitably  than  in 
Xew  Y'ork  or  other  commercial  centers.  Under  the  present  banking 
law,  unamended,  many  communities  can  not  have  the  benefit  of  banks, 
and  not  having  them  can  not  obtain  needed  money  and  credit. 

The  Chairman.  Is  it  not  a  fact  that  the  860,000,000  of  currency  lying 
in  these  banks,  of  which  I  have  spoken,  is  because  they  can  not  success- 
fully loan  it  f 

Mr.  Eckels.  They  can  not  loan  it  successfully  now  because  of  the 
general  condition  of  the  times,  and  at  all  times  they  are  more  or  less 
embarrassed  to  keep  it  in  active  use. 

The  Chairman.  Then  if  we  had  this  old  Xew  England  Sutfolk  system 
of  issuing  and  redemption  of  this  currency  by  banks,  the  volume  of 
currency  paid  into  banks  wouhl  not  deplete  the  power  to  loan  by  these 
banks.  They  would  send  it  back  to  the  country  banks  and  it  would  be 
disposed  of. 

Mr,  Eckels.  Yes.  I  am  agreeing  with  you  as  to  the  bank  issuing 
the  notes — that  if  they  do  issue  the  notes  undoubtedly  they  would  see 
to  it  that  there  was  not  an  accumulation. 

Mr.  Johnson.  Here  is  a  i)oint  I  want  to  make.  If  a  banking  and 
currency  system  can  be  devised  whereby  the  issue  of  notes  is  less 
expensive  than  under  the  existing  system,  whereby  the  profit  of  the 
banks  on  the  issue  of  notes  is  greater  than  it  is  under  the  existing  sys- 
tem, will  it  not  increase  the  probability  that  banks  will  be  established 
in  these  agTicultural  sections? 

Mr,  Eckels,  I  think  that  is  undoubtedly  true, 
'  Mr.  Johnson.  I  believe  that  there  is  a  very  just  grievance  upon  the 
part  of  those  living  in  these  sections,  when  they  say  that  they  can  not 
get  money  to  meet  either  ordinary  or  extraordinary  exchanges  without 
much  trouble  i«id  without  paying  exceedingly  high  rates  of  interest? 

Mr.  Eckels.  There  are  many  such  communities  guttering  from  the 
inconvenience  you  have  stated.  The  remedy  is,  wherever  any  remedy 
is  possible  and  conditions  warrant  the  undertaking,  to  establish  banks, 


256  FINANCIAL    AND    BANKING    SITUATION. 

either  iudependeut  banks  or  braiujli  banks.  These  banks  would  rapidly 
increase  if  it  was  proven  that  there  was  a  margin  of  profit  in  them. 

Mr.  Johnson.  And  the  more  the  expense  the  less  the  margin  of  profit  ? 

Mr.  Eckels.  Yes.  2^ot  the  least  benefit  which  would  follow  would 
be  that  throug'h  the  establishment  of  these  banks  these  communities 
have  been  afforded  the  means  of  bringing  to  the  attention  of  the  own- 
ers of  loanable  capital  elsewhere  that  they  have  the  things  which 
justly  entitles  them  to  credit — facilities  which  they  have  not  at  the 
present  time.  In  a  great  number  of  instances  at  present  I  have  no 
doubt  the  want  of  these  facilities,  more  than  any  other  reason,  keeps 
people  who  are  justly  entitled  to  credit  from  obtaining  it. 

Mr.  Kewlaxds.  Will  you  permit  me — I  just  want  to  make  an  inquiry 
for  the  purpose  of  expediting  business.  At  a  convenient  time  I  would 
like  to  ask  Mr.  Eckels  a  few  questions,  and  now  I  want  to  know  whether 
we  are  to  go  on  with  the  hearing  this  afternoon  or  adjourn  until  to-mor- 
row. I  presume  Mr.  Eckels  wants  to  get  back  to  the  office  at  some 
time. 

The  Chairman.  That  is  for  the  committee  to  determine. 

Mr.  E(-KELS.  I  must  leave  some  time  during  the  afternoon,  as  my 
deputy  is  absent  and  I  must  attend  to  some  duties  at  my  office. 

The  Chairman.  Until  what  hour!     Can  we  go  on  this  afternoon? 

Mr.  Eckels.  Until  3  o'clock. 

Mr.  i^EWLANDS.  I  ask  that  the  j3ommittee  adjourn  until  half  past  1 
o'clock  and  then  resume. 

The  Chairman.  1  think  we  had  better  proceed  a  little  further. 

]Mr.  jSTewlands,  Then  I  make  the  motion  that  we  adjourn  at  1  o'clock 
until  half-past  1.  I  think  some  of  the  committee  Avish  to  go  into  the 
House  during  the  morning  hour. 

Mr.  Fowler.  I  second  that  motion. 

The  question  was  put  and  the  motion  was  agreed  to. 

call   deposits   counted   as   RliSERVE. 

Mr.  Spalding.  Is  not  the  congestion  in  ]N^ew  York  City  caused  largely 
by  the  fact  they  pay  interest  on  call  deposits  of  the  banks  of  the  inte- 
rior, and  at  the  same  time  they  are  allowed  to  count  that  as  their 
reserve;  and  is  that  not  one  of  the  causes  of  congestion? 

Mr.  Eckels.  Yes.  Interest  on  deposits  undoubtedly  attracts  much 
money  there  which  is  counted  as  a  part  of  tlie  banks' recpiired  reserves. 
Much  of  it,  however,  goes  there  because  the  owners  have  no  means  of 
knowing  where  else  to  invest  it. 

Mr.  Spalding.  It  is  counted  as  the  reserves  of  the  banks  in  the  inte- 
rior and  out  West,  and  it  is  kept  on  call,  and  they  pay  l.\  to  2.]  ])er  cent? 

Mr.  Xewlands.  And  in  that  way  the  Western  banks  utilize  the 
reserve  and  get  interest  on  it. 

Mr.  Eckels.  In  connection  with  this,  if  we  regulate  or  attempt  to 
regulate  the  matter  by  not  ])ermitting  them  to  count  that  as  a  i^art  of 
their  reserve,  they  would  not  have  any  more  loanable  capital  at  home, 
because  they  have  still  to  carry  tlieir  reserve,  which  could  not  be  loaned. 

Mr.  Spalding.  I  am  not  combating  it,  I  am  simply  stating  that  as 
one  of  the  factors. 

Mr.  Newlands.  Do  you  propose  that  bank  currency  shall  be  legal 
tender? 

Mr.  Eckels.  No;  I  would  not  make  bank  currency  legal  tender. 

Mr.  Newlands.  Suppose  a  depositor  deposits  moiu\v  with  such  a 
bank  and  takes  a  certilicate  of  dei)osit,  and  then  demands  payment  of  his 
certificate  iu  legal  tender,  could  the  bank  pay  him  with  this  currency? 


FINANCIAL    AND    BANKING    SITUATION.  257 

Mr.  Eckels.  It  could  pay  in  this  currency,  and  the  currency  would 
be  redeemable  in  gold. 

Mr.  Newlands.  That  deposit  calls  for  dollars,  does  it  not? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  If  he  demands  payment  of  gold  or  legal-tender 
money,  would  not  he  be  entitled  to  it? 

Mr.  Eckels.  Yes;  and  he  would  undoubtedly  get  it,  because  no  bank 
would  ])ermit  itself  to  lose  its  credit.  The  competition  between  banks 
and  the  necessity  of  self-preservation  through  a  maintenance  of  credit 
would  regulate  that. 

Mr.  Newlands.  The  bank  could  not  legally  compel  liini  to  accept 
this  currency  in  payment  of  a  certificate  of  deposit? 

Mr.  Eckels.  I  do  not  believe  much  in  legal  tenders,  anyway. 

Mr.  Newlands.  Suppose  the  bank  loans  out  its  money  upon  the 
promissory  note  of  its  customer  payable  in  dollars,  would  that  customer 
pay  bank  notes  in  discharge  of  that  note? 

Mr.  Eckels.  No;  I  think  he  would  have  to  go  to  the  bank  and  get 
his  notes  redeemed. 

Mr.  Newlands.  No;  be  would  have  to  tender  legal-tender  money? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  And  the  function,  I  understand,  of  this  bank  cur- 
rency is  that  it  would  be  practically  simply  a  bank  check  payable  to 
bearer  to  circulate  in  a  community  ? 

Mr.  Eckels.  Say  a  proniissory  note  on  the  part  of  the  bank  redeem- 
able in  gold. 

Mr.  Newlands.  Now,  to  what  extent  do  you  expect  when  green- 
banks  are  retired  bank  currency  will  be  issued  in  this  country;  how 
many  millions? 

Mr.  Eckels.  I  think  it  would  be  issued  to  the  extent  that  there  was 
a  demand  for  it.  Every  dollar  which  could  possibly  be  used  profitably 
by  the  people  would  be  issued  by  the  banks,  because  in  this  way  only 
would  a  profit  on  note  issues  accrue  to  those  who  are  engaged  in  the 
banking  business. 

Mr.  Newlands.  In  jour  opinion,  would  the  aggregate  issue  of  the 
banks  equal  the  aggregate  issue  of  the  Ignited  States  bi?uks  and  United 
States  Government  in  the  shape  of  greenbacks  to-day  ? 

PRESENT   REDUNDANCY   OF   CURRENCY. 

Mr.  Eckels.  Probably  not.  I  think  to-day  there  is  a  great  redun- 
dancy of  currency,  but  if  needed  it  would  be  issued. 

Mr.  Newlands.  I  understand  the  issue  of  greenbacks  to-day  is 
approximately  8300,000,000? 

Mr.  Eckels.  $340,000,000. 

Mr.  Newlands.  And  of  the  national  banks  about  $200,000,000? 

Mr.  Eckels.  More  than  that;  about  $235,000,000  now. 

Mr.  Newlands.  JMaking  in  all  about  $550,000,000.  Your  idea  is  that 
under  this  new  system  of  national-bank  currency  that  extent  would  not 
be  issued,  but  it  could  be  issued  if  it  was  needed  ? 

Mr.  Eckels.  Yes,  if  needed.  I  have  no  doubt,  however,  but  that  a 
great  deal  of  gold  would  come  in,  which  would  lessen  the  necessity  of 
bank  notes. 

uncovered  paper  money. 

Mr.  Newlands.  Do  you  know  of  any  country  in  the  world  that  suj)- 
ports  so  large  an  amount  of  bank  i)aper  redeemable  in  gold  and  main- 
tains it  at  par  with  gold  ? 
cur 17 


258  FINANCIAL   AND    BANKING    SITUATION. 

Mr.  Eckels.  Yes;  I  think  the  issue  of  the  Bank  of  France  is  almost 
as  large. 

Mr.  JSTewlands.  Uncovered  i)aper  money  ? 

Mr.  Eckels.  Oh,  no;  not  uncovered. 

Mr.  Newlands.  What  is  the  total  amount  of  uncovered  issue  of  the 
Bank  of  France  ? 

Mr.  Eckels.  I  could  not  say  definitely  as  to  that.  In  England  it  is 
about  £16,000,000. 

Mr.  Newlands.  About  $80,000,000.     And  what  is  it  in  (xermany? 

Mr.  Eckels.  I  do  not  know  certainly,  but  about  $00,000,000.  It  may 
be  larger. 

Mr.  Newlands.  Do  you  know  how  large  it  is  in  France? 

Mr.  Eckels.  No,  I  could  not  state  positively. 

Mr.  Fowler.  I  would  like  to  understand  what  you  mean  by  covered 
and  uncovered  currency? 

Mr.  Eckels.  Covered  paper  is  the  paper  which  has  the  actual  coin, 
behind  it  for  its  redemption — a  special  deposit. 

Mr.  Fowler.  For  its  security! 

Mr.  Newlands.  I  would  not  call  money  covered  money  that  is  simply 
secured  by  bonds,  or  assets,  or  anything  else. 

Mr.  Fowler.  Do  you  not  know  there  is  not  a  dollar  of  the  Imijerial 
Bank  of  Germany  that  is  not  secured? 

Mr.  Newlands.  I  was  asking  with  regard  to  that. 

Mr.  Eckels.  1  think  at  times,  Mr.  Fowler,  notes  are  issued  by  the 
Imperial  Bank  regulated  by  a  tax 

Mr.  Fowler.  And  not  covered  by  a  single  dollar,  coin  or  collateral? 

Mr.  Newlands.  I  observe  in  the  report  of  the  Director  of  the  Mint 
thatthe  uncovered  paper  money  of  England  is  ])ut  at  about  $80,000,000 — 
that  accords  with  your  statement;  that  the  uncovered  paper  money  of 
Germany  amounts  to  about  $125,000,000,  I  can  not  recollect  the  exact 
amount;  and  the  uncovered  paper  money  of  France  and  the  Bank  of 
France  amounts  to  less  than  $125,000,000.  Now,  is  the  report  of 
the  Director  of  the  Mint  correct  in  that  statement?  Have  you  ever 
examined  it? 

Mr.  Eckels.  Yes,  I  suppose  it  is.     He  makes  up  those  figures. 

Mr.  Newlands.  Do  you  know  any  other  countries  that  are  able  to 
maintain  their  paper  money  at  par  with  gold  outside  of  such  small 
countries  as  Belgium,  Holland,  and  possibly  Switzerland? 

The  Chairman.  Do  you  know  what  portion  of  the  money  is  covered 
by  gold  and  silver  in  France? 

Mr.  Eckels.  No,  I  do  not. 

Mr.  Newlands.  Russia,  the  Director  of  the  "Shut  states,  has  about 
$500,000,000  uncovered  i)aper  money.  Do  you  know  whether  or  not- it 
is  kept  at  par  with  gold? 

Mr.  Eckels.  No,  I  think  it  is  not  at  i)resent. 

Mr.  Newlands.  How  nnich  of  a  discount? 

Mr.  Eckels.  Well,  1  do  not  know  just  the  exact  figures. 

Mr.  SpAldinc.  About  50  ])er  cent  compared  with  gold. 

Mr.  Newlands.  Austria  has  something  less  than  $200,000,000  of 
uncovered  i)aper  money,  according-  to  the  Mint  Director's  report.  Is 
that  money  kept  at  a  i)ar  with  gold? 

Mr.  Eckels.  No,  there  is  a  discount  now,  as  I  remember. 

Mr.  Newlands.  Do  you  know  how  heavy  a  discount? 

Mr.  Eckels.  No. 

Mr.  Newlands.  Italy,  according  to  the  Mint  Director's  report,  has 
quite  a  large  amount  of  uiK'overed  ])ai)cr  money.  Do  you  know  whether 
or  not  that  is  kejit  at  a  par  with  gold? 


FINANCIAL    AND    BANKING    SITUATION.  259 

Mr.  Eckels.  No. 

Mr.  Newland.s.  Do  you  know  what  the  discount  is? 

Mr.  Eckels.  No,  I  do  not. 

Mr.  Newlands.  Do  you  know  what  amount  of  uncovered  paper 
money  Spain  has? 

Mr.  Eckels.  No;  but  there  is  a  considerable  amount. 

Mr.  Newlands.  Is  that  kept  at  a  par  with  gold"^ 

Mr.  Eckels.  No. 

Mr.  Newlands.  Do  you  know  what  tlie  discount  is? 

Mr.  Eckels.  No. 

Mr.  Newlands.  I  have  not  tlie  Mint  Director's  report  before  me;  if 
the  secretary  will  kindly  get  me  the  copy  of  tlie  Director's  report— — 

Mr.  McCleary.  I  have  a  table  of  the  statements  here. 

Mr.  Newlands.  Will  you  be  kind  enough  to  let  me  have  that? 

Mr.  McCleary.  This  is  not  the  report  of  the  Director  of  the  Mint. 

Mr.  Newlands.  I  will  state  to  you  that  the  report  of  the  Director  of 
the  Mint  states  that  the  uncovered  paper  money  of  the  United  States  is 
$416,000,000,  of  the  United  Kingdom  $113,000,000,  of  France  $32,000,000, 
of  Germany  $(iO,000,000,  of  Italy  $191,000,000,  of  Greece  $22,000,000,  of 
Spain  $83,000,000,  of  Portugal  $5r),000,0()0,  and  of  Russia  $539,000,000. 
Now,  I  wish  to  ask  you  whether  in  the  case  of  Kussia,  Italy,  Spain,  Por- 
tugal, or  Austria,  whose  uncovered  paper  money  is  put  at  $200,000,000, 
if  that  unco\'ered  paper  money  is  Icept  at  a  par  with  gold? 

Mr.  Eckels.  No;  I  take  it,  it  is  not. 

Mr.  Newlands.  Is  there  a  heavy  discount  in  all  of  them? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Now,  this  statement  also  shows  that  the  South 
American  States  have  $550,000,000  of  uncovered  paper  money.  Is  any 
of  that  kept  at  a  par  with  gold  '! 

Mr.  Eckels.  I  do  not  know  what  the  conditions  are  in  Chile  now, 
nor  in  Brazil,  but  undoubtedly  in  all  of  those  countries  there  is  possibly 
a  falling  off. 

Mr.  Newlands.  Is  there  any  debtor  country  which  keeps  its  uncov- 
ered paper  money  at  a  par  with  gold? 

Mr.  Eckels.  No;  I  think  not,  except  the  United  States. 

Mr.  Newlands.  Can  you  point  out  to  me  a  single  debtor  nation  in 
the  world,  that  is  to  say,  a  debtor  in  its  relation  to  other  nations  as 
people  bear  to  other  people  the  relation  of  debtors,  where  uncovered 
paper  money  exists,  where  they  have  been  able  to  keep  that  paper 
money  at  a  par  with  gold  ? 

Mr.  Eckels.  Not  where  the  government  has  issued  it,  but  they  have 
where  the  banks  have  issued  it. 

Mr.  Newlands.  In  what  countries? 

Mr.  Eckels.  In  the  United  States,  until  the  war,  banks  properly 
conducted,  such  as  the  bank  of  which  Mr.  McCulloch,  of  Indiana,  was 
president,  and  other  banks  always  maintained  redemption  in  gold. 
The  banks  in  the  Suffolk  system  did  the  same  thing. 

Mr.  Newlands.  I  am  limiting  my  inquiry  to  the  present  time.  Can 
you  point  out  a  single  debtor  country 

DEBTOR   NATIONS. 

The  Chairman.  I  want  to  ask  Mr.  Eckels  whether  as  a  matter  of 
fact  there  is  any  such  thing  as  a  debtor  nation?  There  is  no  debtor 
nation  or  creditor  nation. 

Mr.  Eckels.  I  suppose  where  you  speak  of  a  debtor  nation  you 
speak  of  the  financial  condition  of  the  aggregate  of  individuals. 


260  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Kewlands.  I  liave  limited  my  inquiry  to  the  present  condition. 
Can  you  point  out  to  me  a  single  debtor  country  to-day  which  has 
uncovered  paper  money  issued  either  by  banking  power  or  government 
power  that  keeps  that  money  at  a  par  with  gold  except  the  United 
States? 

Mr.  Eckels.  No,  but  there  is  not  a  nation  at  the  present  day  that 
has  a  banking  system  which  makes  so  much  of  bank  deposits  as  is 
made  in  this  country  and  has  as  good  and  stable  banks,  but  is  able 
to  maintain  a  parity  between  gold  and  the  paper  issued  by  such  banks. 

Mr.  Newlanus.  You  maintain  that  such  countries  could  maintain 
it,  but  you  do  not  insist  that  in  any  country  you  know  of  it  does 
maintain  it"? 

Mr.  Eckels.  The  United  States. 

Mr.  Newlands.  [  excepted  the  United  States.  Do  you  know  any 
country  besides  the  United  States'? 

Mr.  Eckels.  Except  Great  Britain. 

Mr.  Newlands.  I  am  talking  about  a  debtor  country, 

Mr.  Eckels.  I  thiuk  that  is  so.  All  of  those  countries,  Mr.  New- 
lands,  are  populated  with  i^eoples  who  are  not  to  be  compared,  and  are 
countries  whose  resources  are  not  to  be  compared,  with  those  of  this 
country.  Furthermore,  and  the  point  is  an  important  one,  all  of  these 
people  are  wanting  in  banking  facilities  as  we  have  them.  You  can  not 
make  a  fair  comparison  or  arrive  at  a  correct  conclusion  in  this  thing 
unless  all  conditions  are  of  the  same  character  and  equally  favorable. 

Mr.  Newlands.  (Jan  you  point  out  a  single  debtor  country  where 
bank  issues  of  uncovered  paper  mone}^  are  kept  at  a  par  ^^ith  gold, 
except  in  the  United  States"? 

Mr.  Eckels.  No,  I  do  not  know  that  I  can.  However,  if  the  banks 
of  the  United  States  can  so  maintain  their  note  issues,  it  is  sufficient 
for  this  inquiry.  The  proposed  bank  legislation  is  for  the  United 
States  alone,  and  is  to  be  based  upon  conditions  which  the  experience 
of  this  people  demonstrate  they  can  perform. 

Mr.  Newlands.  We  have  maintained  the  parity  of  our  uncovered 
paper  money  with  gold  thus  far! 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  The  strain  of  that  maintenance  has  only  come  upon 
us  in  the  past  three  or  four  years? 

Mr.  Eckels.  Well,  of  course  we  have  only  undertaken  to  do  it  since 
1879. 

Mr.  Newlands.  But  I  am  saying  the  strain,  the  final  strain,  has 
been  during  the  past  three  or  four  years? 

Mr.  Eckels.  Up  to  that  time  the  banks  furnished  the  gold.  They 
thus  relieved  the  Treasury,  and  no  one  appreciated  the  danger  who 
did  not  look  ahead,  until  the  |)oint  was  reached  when  the  banks  shifted 
the  burden  to  the  (jroverninent,  where,  under  the  system  maintained,  it 
belongs.  The  banks  only  did  this  when  it  became  evident  that  any 
other  course  invited  danger  to  their  creditors  and  themselves. 

RECENT    BOND    ISSUES. 

Mr.  Newlands.  During  those  three  years  we  have  issued  1204,000,000 
of  bonds.  How  much  of  that  ^-'(MiOOOjOOO  of  bonds  was  necessary  to 
take  the  idace  of  the  deficit  in  the  Treasury,  and  how  much  was  neces- 
sary for  gold  redemption? 

Mr.  Eckels.  Tiiat  you  will  have  to  find  out  from  tlie  rejwrt  of  the 
Secretary  of  the  Treasury.    The  fact  is,  that  not  a  single  dollar  of  it 


FINANCIAL    AND    I'.ANKING    SITUATION.  261 

could  liave  been  issued  if  it  liud  not  been  for  the  law  applicable  to  tlie 
maintenance  of  tlie  f^old  reserve  required  to  redeem  the  (xoverment's 
currency  issues. 

Mr.  Newlands.  1  understand  tliat,  but  I  am  speaking  now  of  the 
facts. 

BOND8    SOLD    TO    MEET    CURRENT    EXPENSES. 

IVfr.  Eckels.  tJndoubtedly,  Mr.  Xewlauds,  more  or  less  of  it  was 
ultimately  used  to  meet  the  current  expenses  of  the  Government,  but 
the  Secretary  has  always,  and  correctly,  maintained  that  in  only  one 
instance  would  it  have  been  necessary  to  issue  bonds  to  meet  the 
ex])eiises  of  the  Goverument.  In  all  the  others  the  bond  issues  were 
made  absolutely  necessary  for  the  purpose  of  maintaining  the  parity  of 
the  two  metals  as  called  for  under  the  act  of  Congress. 

Mr.  Newlands.  Understand  me,  1  do  not  make  the  inquiry  for  the 
purpose  of  criticising 

Mr.  Eckels.  I  understand  that. 

Mr.  is^EWLANDS.  — the  Treasury  Department  in  the  employment  of 
any  of  this  fund  to  meet  a  deficit  of  revenue.  I  simjjly  want  to  draw  a 
dividing  line  and  ascertain  how  nmch  of  this  issue  was  necessary  to 
make  up  a  deficit  and  how  much  for  gold  redemi)tion  of  greenbacks. 
Can  you  state  that  approximately? 

Mr.  Eckels.  No,  1  can  not. 

Mr.  Spalding.  About  $200,000,000  up  to  the  present  time. 

The  Chairman.  Was  there  a  time  in  the  last  three  years  when  there 
was  not  a  sufficiency  of  money  in  the  Treasury  to  have  met  the  demands 
if  it  had  not  been  for  the  desire  to  maintain  the  parity  ? 

Mr.  Eckels.  I  think,  except  in  one  instance,  that  the  Secretary 
stated  it  was  necessary. 

Mr.  Newlands.  Then,  in  your  judgment,  the  issue  of  these  bonds 
was  quite  necessary  to  maintain  the  parity  of  the  paper  issued  in  gold. 

Mr.  Eckels.  Absolutely. 

The  Chairman.  The  hour  of  1  o'clock  has  now  arrived  and  the  com- 
mittee will  take  a  recess  until  half  past  1. 

after  recess. 

The  committee  reassembled  at  1.30  p,  m, 

STRAIN   OF   maintaining  PAPER   AT   A  PARITY. 

The  Chairman  (to  Mr.  Eckels).  Mr.  Newlands  said  that  the  strain 
upon  us  in  maintaining  our  paper  money  at  par  with  gold  has  come 
ujjon  us  within  the  last  three  years,  and  you  answered  that  that  was 
true.  I  want  to  ask  if  the  strain  has  not  been  upon  us  from  1879,  when 
we  resumed  specie  payments,  and  up  to  the  present  time,  having  cul- 
minated within  the  last  three  years,  in  the  fact  that  the  Treasury  has 
carried  in  its  vaults  in  the  neighborhood  of  $300,000,000  in  order  to 
make  the  country  feel  satisfied  that  gold  i)ayment  was  to  be  main- 
tained— carried  it  either  in  currency  or  gold,  about  half  in  gold. 

Mr.  Eckels.  Yes,  it  has.  Before  Mr.  jSTewlauds  came  in  I  think  I 
had  stated  why  this  condition  had  only  come  upon  us  within  the  three 
years.  I  alleged  as  a  reason,  the  efiect  of  the  Bland- Allison  Act,  which 
became  more  manifest  with  time.  Then  as  a  culmination  to  it  all,  came 
the  Sherman  silver-purchasing  act,  whereby  there  was  increased  the 
demand  obligations  of  the  Government  without  any  corresponding 
increase  in  the  gold  reserve  to  be  held  as  a  redemption  fund  against 
the  same,  and  without  giving  to  the  Secretary  of  the  Treasury  any 


262  FINANCIAL    AND    BANKING    SITUATION. 

means  of  increasing  such  gold  lioldings.  Tlie  result  of  these  tilings 
was  that  the  general  public,  here,  as  well  as  those  people  abroad  deal- 
ing with  us,  gained  the  inii)ressi()n  that  with  the  amount  of  silver  and 
demand  obligations  wliich  we  had,  and  the  law  as  it  was,  the  Secretary 
of  the  Treasury  could  not,  with  the  amount  of  gold  at  his  disposal, 
maintain  current  redein}>tion  in  that  metal,  and  therefore  could  not 
carry  out  the  provision  of  the  statute  relative  to  keeping  the  parity  of 
the  two  metals.  This  was  the  reason  why  the  banks  ceased  to  furnish 
the  amount  of  gold  necessary  to  settle  international  balances,  the  con- 
sequent effect  of  which  was  that  the  Treasury  was  called  upon  to  make 
these  current  redemptions,  a  thing  which  up  to  1890  it  had  only  infre- 
quently been  asked  to  do.  and  then  only  in  small  amounts. 

The  CiiAiR^iAN.  T^p  to  1890  the  banks  had  furnished  the  gold  both 
for  paying  the  duties — very  largely,  80  odd  i)er  cent  of  them — and  for 
foreign  gold  ex])ort,  by  the  Government's  being  a  member  of  the  Xew 
York  clearing-house  and  paying  the  gold  into  the  clearing-house;  so  it 
went  into  the  Treasury  and  out  again  without  depleting  the  Treasury. 

Mr.  Eckels.  That  is  one  reason. 

The  Chairman.  Now,  furthermore,  isn't  it  a  fact  that  the  taxation 
of  the  people  was  increased  in  the  equivalent  of  what  the  money 
was  worth  to  them  that  they  had  to  pay  in  taxation,  namely,  0  per 
cent  on  this  whole  8300,000,000  through  that  whole  period,  and  that  if 
the  Government  has  to  maintain  gold  payment  we  have  to  maintain  it 
at  the  same  expense  we  maintained  it  for  the  ten  years,  by  $17,000,000 
a  year  in  increased  taxation? 

Mr.  Eckels.  The  fact  was  that  up  to  that  time  the  banks  furnished 
all  the  gold  necessary  for  domestic  and  foreign  purposes  without  any 
apparent  strain  ui)ou  tliem. 

Mr.  Newlands.  Mr.  Eckels,  in  your  opinion,  did  the  shifting  of  the 
balance  of  trade  between  this  country  and  foreign  countries  in  1893  and 
the  consequent  demand  for  gold,  in  order  to  settle  balances,  have  any- 
thing to  do  with  increasing  the  strain  of  the  gold  redemption  in  this 
countrj'? 

]\rr.  Eckels.  Only  to  the  extent  that  it  made  gold  a  little  harder  for 
the  Treasury  and  for  the  people  to  get.  I  intended  recurring  to  the 
last  thing  you  asked  me.  You  spoke  about  debtor  nations  having  been 
unable  to  carry  on  the  current  redemption  of  their  paper  issues  in  gold 
or  to  maintain  the  parity  thereof  with  gold.  Why  do  you  draw  the  dis- 
tinction in  this  matter  between  the  debtor  nation  and  the  creditor 
nation? 

THE    SILVER    (,»UESTION. 

Mr.  Newlands.  You  have  started  the  silver  question  now,  and  I 
don't  want  to  go  into  that. 

Mr.  Eckels.  I  think  you  can  state  it  briefly. 

Mr.  Newlanls.  1  will  say  1  thiidc  a  debtor  nation  is  more  likely  to 
be  called  upon  ibr  international  money  than  a  creditor  nation  is,  and 
that  the  strain  of  the  redenqttion  in  gold  will  be  greater  upon  a  debtor 
nation  than  a  creditor  nation;  hence  I  assert  that  the  reason  why  the 
creditor  nations  have  l)een  able  to  keep  their  uncovered  paper  at  par 
with  gold  is  that  they  have  the  advantage  of  being  creditor  nations 
and  that  the  reason  why  debtor  nations  have  been  unable  to  do  so  is 
that  they  have  the  disadvantage  of  being  debtor  nations,  and  that  con- 
sequently the  demand  for  the  redemi)tion  in  gold  is  greater;  and  I  also 
assume  the  theory  of  the  bimetallists,  that  there  is  not  enough  gold  in 
the  world  for  gold  redemption. 


FINANCIAL    AND    BANKING    SITUATION.  263 

Mr.  Eckels.  To  what  extent  do  you  give  consideration  to  the  indi- 
vidual management  of  the  banks  and  cliaiacter  of  the  banking  institu- 
tions— for  instance,  in  this  country  or  tlie  banking  institutions  of  lius- 
sia,  or  the  countries  to  which  you  have  alluded  f 

Mr.  Xewlands.  I  sliould  make  the  proper  allowance  for  that.  The 
tendency  of  my  investigation  is  to  show  that  this  idea  of  almost  unlim- 
ited paper  issues  means  an  experiment  which  has  not  as  yet  been  suc- 
cessfully tried  by  any  debtor  nation,  that  is  all. 

UNCOVERED    PAPER   MONEY    OF    THE    WORLD. 

I  observe  by  the  Mint  Director's  report  that  the  total  amount  of 
uncovered  paper  money  in  the  world  is  $2,469,000,000,  and  of  that 
amount  a  little  over  $200,000,000  is  issued  by  creditor  nations,  so  called, 
leaving  about  $2,200,000,000  issued  by  debtor  countries;  and  I  believe 
we  have  your  statement  that,  so  far  as  your  knowledge  goes,  the  United 
States  is  the  only  one  of  these  debtor  countries  that  has  been  able  to 
keep  its  uncovered  i)aper  at  par  with  gold. 

world's   stock   OF    SILVER   AND    GOLD. 

The  Director  of  the  Mint  also  states  that  the  total  bulk  of  silver  in 
the  world— the  total  silver  stock— is  about  $4,000,000,000,  and  that  the 
total  stock  of  gold  in  the  world  is  about  $4,000,000,000,  and  that  the 
total  stock  of  paper  money  is  $2,400,000,000,  making  in  all  about 
$10,400,000,000. 

Now,  1  believe  the  assumption  of  the  gold  standard  men  is  that  gold 
has  not  appre<;iated ;  that  it  is  maintained  at  a  fixed  value.  If  that  be 
true,  this  stock  of  silver,  whose  face  value  is  $4,000,000,000,  has  depre- 
ciated to  about  $2,000,000,000,  and  we  have  a  total  stock  of  uncovered 
paper  money  in  the  world  of  about  $250,000,000,000,  of  which  only  about 
one- fifth  is  kept  at  i)ar  with  gold,  the  rest  being  at  a  very  large  dis- 
count, approximating  $1,000,000,000;  so  that  there  is  a  total  deprecia- 
tion in  its  face  value  of  the  Avorld's  stock  of  money  of  at  least  $3,000,- 
000,000  out  of  $10,250,000,000.  Now,  do  you  think  that  this  dislocation 
of  the  par  between  gold  and  silver  and  paper  in  the  world's  currency 
has  a  bad  effect  upon  trade  and  upon  business? 

Mr.  Eckels.  It  undoubtedly  has  some  effect,  but  I  think  the  error 
of  the  assumption  of  the  silver  people  lies  in  this:  You  base 

Mr.  Newlands.  Pardon  me,  I  did  not  inteudto  go  into  a  silver  argu- 
ment. I  simi)ly  wish  to  inquire  wliether  in  your  opinion  this  deprecia- 
tion of  $2,000,000,000  in  silver  and  $1,000,000,000  paper  has  had  any 
disastrous  effect  upon  the  trade  of  the  world? 

Mr.  Eckels.  Undoubtedly  it  has  affected  the  trade  of  the  world 
somewhat  but  I  think  it  has  not  been  what  you  term  disastrous,  at  all. 

MAINTAININa  THE   PAR   OF  EXCHANGE. 

Mr.  Newlands.  Yes.  Then  we  have  in  this  country  gold,  silver, 
and  paper.  The  effort  of  this  country  has  been  to  maintain  the  par  of 
exchange  between  those  three  classes  of  money.  Do  you  think  that  it 
is  desirable  that  the  par  of  exchange  .should  be  maintained? 

Mr.  Eckels.  Yes;  I  think  every  country  ought  to  maintain  all  the 
money  which  circula>tes  in  that  country  at  par. 

Mr.  Newlands.  With  gold  ? 

Mr.  Eckels.  Yes.  But  I  do  not  think  it  ought  to  get  itself  into 
a  position  where  it  must  be  at  a  continual  expense  to  maintain  one 


264  FINANCIAL    AND    BANKING    SITUATION. 

form  of  money  at  a  parity  with  the  other  and  that  it  onght  to  lop  off 
those  moneys  which  can  not  sui)port  themselves. 

Mr,  Xewlam)S.  Your  idea,  then,  is  that  it  is  desirable  that  we  should 
maintain  the  par  of  exchange  in  this  countrj^  between  our  various  forms 
of  money,  and  if  that  proves  expensive  then  we  should  lop  oft'  depre- 
ciated forms  of  money? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  That  would  mean  getting'  rid  of  silver  in  this  coun- 
try as  a  prinuiry  money,  and  it  would  also,  in  your  judgment,  mean 
getting-  rid  of  paper  money,  unless  its  par  could  be  maintained  Avith 
the  gold, 

Mr.  Eckels.  Yes,  it  has  always  been  redeemed,  on  demand,  in  gold. 

Mr.  Kewlands.  Suppose  you  could  not  maintain  that  parity  in  this 
country;  in  your  judgment,  wouhl  it  be  disastrous  to  the  business  of 
the  country  ? 

Mr.  Eckels,  Undoubtedly  it  would, 

Mr.  iSTEWLANDS.  If  that  be  true  isn't  it  just  as  important  to  maintain 
the  par  of  exchange  in  international  moneys — the  moneys  of  the  world? 

GOLD   THE   RECOGNIZED   STANDARD. 

Mr.  Eckels.  Yes,  it  is  important  to  have  it  maintained  at  a  par  in 
the  countries  with  which  we  are  dealing,  and  in  all  these  countries  with 
which  we  are  dealing  the  recognized  standard  is  the  gold  standard. 

Mr,  Newlands.  But  taking  the  world-wide  view,  is  it  your  opinion 
that  it  is  important  to  maintain  the  par  of  exchange  between  the  dif- 
ferent kinds  of  money  throughout  the  Avorld? 

Mr.  Eckels.  1  think  it  would  be  a  very  good  thing  if  it  could  be  done. 

Mr.  Newlands.  Now,  if  it  could  not  be  done;  we  will  assume  that 
we  have  the  standard,  with  a  par  of  exchange,  twenty  years  ago,  and 
we  will  assume  that  in  the  process  of  years,  as  has  been  the  case,  the 
silver  has  depreciated  as  compared  with  gold,  and  the  uncovered  paper 
money  of  the  world  has  depreciated  as  com^jared  with  gold,  and  assum- 
ing that  caused,  as  you  think  it  would  cause,  a  dislocation  of  the  busi- 
ness of  the  world  and  disaster;  upon  whom  would  the  disaster  fall, 
ui)on  the  countries  that  had  the  depreciated  currency  or  upon  the 
countries  which  according  to  your  judgment  had  the  stable  currency — 
gold  ? 

Mr.  Eckels.  Well,  I  would  think  it  would  affect  both, 

Mr.  Newlands.  You  think  it  would  affect  both? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  What  particular  disadvantage  would  it  create  as  to 
the  countries  that  had  the  depreciated  currency? 

Mr.  Eckels.  To  change  the  standard? 

Mr.  Newlands.  Yes. 

Mr.  Eckels.  For  instance,  in  this  country  I  think  that  the  loss 
occurring  by  the  change  necessarily  made  in  contracts  would  be  far 
greater  to  our  own  people  from  siujply  their  domestic  exchanges  than 
it  would  with  those  who  are  dealing  with  us  abroad. 

Mr.  Nea\  lands.  What  efi'ect  would  it  have  upon  production  and 
upon  labor,  in  your  judgment? 

LABOR  WOULD   SUFFER   MOST   OF   ALL, 

Mr.  Eckeis.  I  think  that  labor  would  suffer  quite  the  most  of  all. 

Mr.  Newlands,  Your  idea  is  that  labor  would  l)e  cheai)ene(l,  alth(mgh 
nominally  paid  in  the  same  lace  value;  that  the  money  would  have 
less  purchasing  power  ? 


FINANCIAL   AND    BANKING   SITUATION.  265 

Mr.  Eckels.  I  think  tliis:  The  only  capitiil  Miiich  tlie  laborer  has  is 
his  ability  to  work,  which  capital  he  sells  ibr  money.  For  his  own  good 
he  ought  to  sell  it  for  that  money  which  buys  for  him  the  largest  num- 
ber of  things.  It  therefore  follows  that  if  you  lessen  the  value  of  that 
money  you  lessen  the  number  of  things  which  he  can  purchase  with  his 
capital,  which  is  labor. 

Mr.  I^BWLANDS,  In  other  words,  you  chea])en  his  labor? 

INIr.  Eckels.  Yes;  you  cheapen  his  labor  without  incaeasing  the  price 
of  it.  On  the  other  hand,  you  increase  the  price  of  the  things  which 
he  has  to  ])urcha8e.  The  laborer  occupies  a  very  dittererit  position  in 
the  thing  Avhich  he  has  to  sell  from  the  man  who  has  mercliandise  to 
sell.  Consequently  anything  which  tends  to  raise  the  price  of  that 
which  he  has  to  purchase  without  increasing  the  receipts  from  that 
which  he  has  to  sell  injuriously  affects  him. 

Mr,  Newlands.  I  understand  then,  that  in  your  judgment  that 
would  apply  to  all  these  countries  which  have  a  dei^reciated  money — 
either  silver  or  paper. 

Mr.  Eckels.  I  think  in  the  end  that  they  would  be  very  much  more 
largely  the  sufferers  than  the  people  who  maintained  the  gold  standard. 

Mr.  Newlands,  It  has  the  tendency  in  these  countries  to  really 
cheapen  their  labor,  hasn't  it? 

Mr.  Eckels.  Yes,  because  it  does  not  give  them  an  increased  price 
for  their  labor,  and  it  does  increase  the  prices  of  the  things  which  they 
have  to  buy. 

Mr.  Newlands.  Very  well,  then.  Take  these  countries  which  have 
either  silver  or  depreciated  paper,  and  whose  labor  is  cheai^ened,  accord- 
ing to  your  statement,  by  that  fact. 

Mr  Eckels.  There  are  other  elements,  of  course,  that  contribute 

Mr.  Newlands.  Does  it  then  enable  them  to  produce  both  agricul- 
tural products  and  manufactured  products  at  a  less  labor  cost,  all  other 
things  being  equal? 

Mr.  Eckels.  Apparently,  in  the  aggregate  they  do,  but  the  way  to 
estimate  properly  a  labor  cost  is,  not  to  say  that  this  man  who  is  work- 
ing on  this  thing  receives  so  much  a  day,  but  it  is  to  take  how  much  he 
receives  a  day  and  then  estimate  the  labor  cost  by  dividing  the  daily 
wage  by  the  number  of  things  he  manufactures  or  makes  a  day.  In 
this  manner  you  are  able  to  ascertain  correctly  the  individual  cost  of 
the  individual  article.  It  is  wholly  inaccurate  to  compare  simply  the 
total  dollars  received  and  not  take  into  account  the  results  obtained 
from  the  expenditure  of  those  dollars  in  every  country  between  which 
comparisons  are  being  made. 

Mr.  Newlands.  You  mean  efiticient  labor  has  a  great  deal  to  do 
with  it? 

Mr.  Eckels.  Yes;  very  much. 

Mr.  Ne\vlands.  But  I  covered  all  that  by  saying  "all  other  things 
being  equal" — appliances  for  manufacturing,  the  machinery,  everj^thiug 
that  human  intelligence  can  ])roduce  to  aid  human  labor.  I  ask  you,  if 
the  labor  unit  cost  less  i)er  day  by  reason  of  the  depreciated  money, 
whether  the  products  of  that  country  do  not  have  a  certain  advantage 
in  the  markets  of  the  world  over  the  products  of  the  country  that  has 
the  currency  that  is  stable,  according  to  your  judgment — gold. 

Mr.  Eckels.  Undoubtedly  any  country  which  has  the  lowest  wages 
possible  but  has  all  the  advantages  in  the  way  of  advancement,  in 
machinery,  skill,  education,  etc.,  has  the  advantage  over  another  coun- 
try which  though  having  the  same  advantages  still  pays  higher  wages, 
but  you  must  entirely  (;liange  the  condition  of  the  people  of  these  coun- 
tries, their  habits  of  work,  their  habits  of  thought,  and  their  habits  of 


266  FINANCIAL    AND    BANKING    SITUATION. 

living.  It  is  imi)0ssible  to  make  out  of  these  people  the  same  thing 
that  you  can  make  out  of  the  Anglo-Saxon  people. 

^Ir.  Xewlands.  Then  you  think  the  superiority  is  in  race  and  not  in 
money  standard? 

Mr.  Eckels.  I  think  that  is  a  very  large  contributing  element.  The 
superiority  of  race  manifests  itself  in  having  in  countries  akin  to  us  the 
best  things  in  daily  convenience,  the  best  things  in  manufacture  of 
which  the  world  knows,  and  the  reason  we  maintain  here  the  highest 
standard  of  monetary  value  is  because  it  best  answers  the  purpose  of 
the  highest  civilization  as  expressed  in  its  commercial  necessities. 

THE   SILVER   QUESTION. 

The  Chairman.  There  are  certain  things  in  reference  to  the  financial 
question  that  properly  come  before  this  committee;  there  are  certain 
things  in  relation  to  coinage  that  properly  come  before  the  Committee  on 
Coinage,  Weights,  and  Measures.  This  committee  is  willing  to  hear 
views  with  reference  to  the  bills  in  question  that  are  now  before  this 
committee,  but  I  do  not  think  it  is  willing  to  go  into  a  discussion  of  the 
silver  question.  I  do  not  think  this  is  the  proper  committee  for  that 
discussion. 

Mr.  New^lands.  I  do  not  intend  to  go  into  the  silver  question  at  all. 
I  am  addressing  myself  to  the  importance  of  maintaining  the  par  of 
exchange.  We  have  Mr.  Eckels's  view  that  we  ought  to  maintain  the 
par  of  exchange  between  silver,  paper,  and  gold  in  this  country. 

If  the  countries  that  have  a  depreciated  currency  have  a  cheaper 
labor  as  the  result  of  it,  all  other  things  being  equal,  will  not  the  prod- 
ucts of  their  labor,  in  the  world's  markets,  assuming  that  they  are  of 
e(iual  quality,  pull  down  the  value  of  the  product  of  the  gold-standard 
countries  to  their  level  in  the  markets  of  the  world? 

WRONG  PREMISES. 

Mr.  Eckels.  Yes;  but  the  great  difficulty,  Mr.  Newlands,  with  your 
question  is  that  you  make  an  assumjition  of  something  as  a  fact  which 
is  not  a  fact. 

Mr.  Newlands.  I  quite  agree  with  the  gentleman  as  to  the  absolute 
im])ortance  of  maintaining  the  par  of  exchange  between  our  various 
moneys  in  this  country.  I  also  insist  that  as  this  country  is  a  part  of 
tlie  general  world  and  as  its  prosperity  depends  largely  upon  the  ques- 
tion of  exports  and  imports,  that  it  is  of  the  highest  importance  that 
the  par  of  exchange  be  maintained  in  the  world's  money. 

Mr.  Eckels.  It  is  so  maintained,  is  it  not"? 

Mr.  ^'ewlands.  No;  because  since  1873  the  par  of  exchange  has 
l)een  absolutely  lost  between  silver  and  gold  and  the  result  has  been 
that  the  silver  countries  have  been  able  to  produce  cheaper.  Conse- 
quently their  agricultural  production  has  been  stimulated  at  our 
expense  and  their  manufacturing  production  is  about  to  be  stimulated 
at  our  expense;  and  hence  I  say  that  all  legislation  should  be  addressed 
to  the  question  of  restoring  the  par  of  exchange  in  the  world's  money. 

The  Chairman.  1  think  this  committee  has  no  Jurisdiction  over  that 
question.  Now,  I  ask  the  committee  whether  they  want  to  go  further 
with  this  iTivestigation  of  silver  or  not. 

Mr.  Newlands.  I  have  about  come  to  the  end  of  that. 

Mr.  Eckels.  I  do  not  tliink  you  can  assume  any  one  thing  as  the 
cause  of  these  conditions  of  various  countries  being  different  now  from 


FINANCIAL    AND    BANKING    SITUATION.  267 

what  tliey  were.  You  can  not  say,  for  instance,  that  because  Argentina 
happens  to  be  a  silver  country  that  therefore  Lirge  amounts  of  wheat 
have  been  i^roduced  in  Argentina  to  comijete  with  our  wlieat  in  Dakota. 
There  is  no  one  single  element  which  produces  these  conditions,  but  a 
great  many. 
Mr.  Xewlands.  I  agree  with  you — a  great  many. 

FUNCTION   OF   METALLIC   :\rONEY. 

Mr.  Eckels.  And  I  think  that  the  refinements  of  banking  exchanges 
which  have  gone  on  through  a  jirocess  of  evolution  from  first  to  the 
last  have  necessarily  limited  the  use  of  metallic  money,  and  that  metal- 
lic money  is  now  only  in  demand  for  the  purpose  of  reserves  in  banks 
and  for  the  purpose  of  settling  international  balances.  What  is  said 
upon  the  subject  of  ultimate  redemption  of  the  demand  obligations  of 
the  nations  of  the  world,  or  the  time  obligations  so  far  as  it  extends  to 
the  assumption  that  there  is  not  enough  gold  in  the  world  for  that  pur- 
pose, is  based  upon  the  very  erroneous  idea  that  all  tliese  obligations 
are  to  be  redeemed  at  one  and  the  same  time.  There  is  no  one  who 
wishes  redemption  of  the  obligations  which  he  holds  for  any  other  pur- 
pose than  to  obtain  something  else,  except  a  miser  who  desires  to  hoard 
his  money. 

The  Chairman.  Something  else  that  can  not  be  obtained  by  any 
other  thing. 

GOLD   SUPPLY   AMPLE. 

Mr.  Eckels.  But  the  amount  of  gold  needed  for  the  current  obliga- 
tions of  any  people  is  to  be  estimated  in  the  same  way  that  the  amount 
of  reserve  to  be  held  against  the  deposits  of  a  bank  is  estimated. 
Nobody  expects  the  depositors  of  a  banking  company  to  come  in  and 
demand  all  their  deposits  at  the  same  date.  Bankers  can  estimate  from 
time  to  time  their  needed  reserves  just  as  a  man  estimates  who  is  con- 
ducting a  grocery,  or  any  other  business,  how  much  he  will  need  to 
meet  the  current  wants  of  his  customers.  To  my  mind  it  is  just  as 
erroneous  to  say  on  the  grounds  stated  that  there  is  not  enough  gold  in 
the  world  to  meet  the  outstanding  obligations  of  the  people  as  to  say 
that  everybody  will  want  the  same  article  of  food  on  the  same  day  and 
the  supply  is  inadequate.  For  instance,  the  national  banks  in  this 
country  showed  at  their  last  call  that  they  had  nearly  $2,000,()()0,000 
in  individual  and  other  deposits  and  only  had  in  bank  $381,000,000  of 
lawful  money  reserve. 

]!^ow,  that  !^381,000,000  is  more  than  suflicient  to  meet  any  demand 
that  might  be  made  upon  the  part  of  depositors,  as  estimated  by  the 
action  of  depositors  at  previous  times,  and  upon  the  same  i)rinciple  if 
to-day  there  is  in  this  country  or  elsewhere  the  percentage  of  gold 
necessary  for  current  redemption,  the  amount  to  be  ascertained  in  the 
same  way  that  bank  reserves  necessarily  are  ascertained,  there  would 
be  sufficient  amount  to  meet  all  demands.  If  there  should  be  a  sudden 
demand  for  a  larger  amount  the  bank  has  facility  for  getting  that 
amount  from  the  places  where  there  is  a  surplus,  because  the  banks 
have  the  kinds  of  assets  which  are  convertible  and  which  are  desired 
by  thei)eoi)le  who  have  a  loanable  capital,  and  they  have  the  machinery 
for  the  immediate  conversion  of  them.  It  is  just  as  it  was  when  the 
Baring  failure  occurred.  It  was  not  difficult  for  the  Bank  of  England 
to  get  from  the  Bank  of  France,  which  had  a  large  surplus,  all  the 
necessary  gold  it  desired. 


268  FINANCIAL    AND    BANKING    SITUATION. 

The  CiiAiKMAN.  Mr.  Fowler  has  to  go.  Please  let  him  ask  one 
question,  which  he  very  much  desires  to  ask. 

BANK   OF   FRANCE. 

Mr.  Fowler.  I  want  to  explain  away  another  assumption  that  has 
been  made  by  Mr.  Newlauds.  The  assumption  is  this:  The  argument 
has  been  repeated  here  that  the  Imi^erial  Bank  of  Germany  and  the 
Bank  of  France  issued  their  notes  under  cover.  As  a  matter  of  fact, 
there  is  not  one  single  dollar  set  aside  by  the  Imperial  Bank  of  Germany 
for  the  secnritv  of  a  single  note,  and  although  the  issue  power  of  the 
Bank  of  France  is  4,000,000,000  francs,  or  $800,000,000  of  our  money,  and 
its  outstanding  notes  are  $735,843,041,  there  is  absolutely  not  one  dollar 
security  speciflcally  set  aside  to  cover  a  single  one  of  those  notes;  that 
is,  the  issue  of  all  notes  amounts  to  $735,843,041.  The  deposits  of  the 
people  of  France,  public  and  i)rivate,  with  the  Bank  of  France  amount 
to  only  $11*0,507,705;  so  that  the  Bank  of  France  maintains  its  redemp- 
tion purely  upon  a  note  issue  for  which  there  is  absolutely  not  the  cover 
of  a  single  dollar. 

And  in  addition  to  that,  the  banks  of  Scotland,  the  banks  of  Ireland, 
and  the  joint  stock  banks  and  inivate  banks  in  England,  excluding  the 
Bank  of  England,  have  a  credit  currency  of  $70,000,000,  for  not  one  dol- 
lar of  which  is  there  a  single  dollar  set  aside  for  specific  cover. 

Mr.  Newlakds.  Are  you  on  the  witness  stand  now? 

Mr.  Fowler.  I  am,  sir. 

Mr.  Newlands.  Permit  me  to  ask  you  one  question.  The  report  of 
the  Director  of  the  Mint  for  1895,  page  40,  gives  a  statement  of  the 
uncovered  paper  money  in  France  and  Germany,  and  it  states  that  the 
uncovered  paper  money  of  France  is  $32,000,000,  and  the  uncovered 
paper  money  of  Germany  is  $65,000,000.  Do  you  claim  that  that  is 
incorrect  1 

Mr.  Fowler.  I  say  that  statement  was  technically  correct  at  the 
time  it  was  made,  because  the  bank  itself  simply  had  that  in  its  treas- 
ury, but  there  Avas  not  one  single  dollar  set  aside  to  secure  the  note 
issue.  It  might  be  the  next  day  they  would  not  have  half  as  much 
metallic  money  to  secure  that  as  the  day  the  Director  of  the  Mint  made 
that  statement? 

Mr.  Newlands.  You  mean  that  they  did  not  require  it  to  be  covered? 

Mr.  Fowler.  That  is  it,  exactly. 

Mr.  Newlands.  But  do  you  take  issue  with  the  statement  made  by 
the  Director  of  the  Mint  that  on  the  day  that  that  report  was  made 
France  had  out  only  $32,000,000  and  Germany  only  $00,000,000? 

Mr.  Fowler.  I  know  nothing  about  the  correctness  of  his  statement 
that  day.  The  r>iink  of  France  might  not  have  had  ni)on  the  same 
day  a  single  dollar  of  metal  there,  excei)ting  of  its  own  volition. 

Mr.  Newlands.  Assuming  that  the  bank  has  the  power  to  issue  this 
vast  amount  of  uncovered  paper  money,  it  only  verifiies  the  proposi- 
tion that  no  safe  bank  in  God's  world  would  ever  issue  it.  If  you  rely 
on  the  banks  of  this  country  to  furnish  the  country  with  paper  money 
your  hope  of  getting  sufficient  volume  of  such  money  will  not  be  real- 
ized, because  no  safc^  l)ank  will  issue 

Mr.  Fowler.  Then  the  P>ank  of  France  is  not  a  safe  bank,  and  its 
issue  of  $710,000,000  in  i)ai)er  money  is  not  safe. 

Mr.  Newlands.  Now,  to  come  back  to  the  United  States  and  the 
question  as  to  whetlier — as  1  understand  it — bank  currency  should  be 
substituted  for  (xovernment  currency.  1  wish  to  ask,  in  your  judgment, 
what  amount  of  uncovered  paper  money  is  there  in  this  country  to-day  ? 


FINANCIAL    AND    BANKING    SITUATION.  269 

PAPEU  'MONEY   OF   THE   UNITED    STATES. 

Mr.  Eckels.  There  are  $235,000,000  in  national-bank  notes.  Tliere 
are  $346,000,000,  technically,  of  legal-tender  notes.  There  are  about 
$125,000,000,  I  think,  of  the  Sherman  notes.  In  addition  to  these  are 
the  Bland  silver  dollars  and  the  other  silver  dollars  that  we  have 
coined,  which,  correctly  speakinj>-,  are  credit  currency,  because  they 
depend  u])on  sometliinj;-  besides  theni.selves. 

Mr.  Johnson.  Do  you  consider  them  credit  currency  to  their  face 
value*? 

Mr.  Eckels.  I  suppose  that  the  silver  dollars  would  be  credit  cur- 
rency only  to  the  extent  of  the  difference  between  one  hundred  cents 
and  their  bullion  value.     There  would  be  $5()5,000,000,  about,  in  silver. 

Mr.  Newlands.  Do  you  regard  all  that  as  credit  currency,  save  so 
far  as  the  bullion  value  of  the  silver  may  be  there  for  its  redemption? 

Mr.  Eckels.  Yes;  as  stated. 

Mr.  Newlands.  If  that  bullion  was  paid  out  in  redemption  to  its 
market  value  and  put  in  the  markets  of  the  world,  would  ic  maintain 
that  value  ? 

Mr.  Eckels.  Its  bullion  value? 

Mr.  Newlands.  Yes;  its  present  bullion  value. 

Mr.  Eckels.  No;  1  suppose  not.  If  a  great  quantity  of  it  were 
thrown  on  the  market  it  would  go  down,  just  as  the  price  depreciated 
when  the  Sherman  silver  law  made  a  market  for  all  the  silver  in  the 
country. 

Mr.  l>rEWLANDS.  Then  do  you  or  do  you  not  regard  all  this  money — 
silver  certificates,  silver,  Treasury  notes,  greenbacks  and  national 
bank  notes — as  redeemable  in  gold? 

Mr.  Eckels.  I  do.  I  think  under  the  act  of  1890,  which  says  it  is 
the  declared  i)olicy  of  the  Government  to  maintain  the  parity  of  the 
metals,  that  that  law  is  nullified  unless  every  dollar  is  exchangeable 
with  every  other  dollar  without  loss  to  anyone. 

Mr.  Newlands.  And  apart  from  that  law  would  you  regard  it  as 
wise  policy  to  maintain  that — all  this  credit  money — redeemable  in 
gold "? 

Mr.  Eckels.  I  would.  I  regard  it  as  an  unfortunate  circumstance 
that  we  have  this,  but  having  gone  into  it,  there  is  no  way  thiit  the 
Government  creditably,  no  matter  what  the  cost,  can  get  out  of  it  except 
by  maintaining  the  parity  of  the  metals. 

Mr.  Newlands.  How  much  gold  is  there  in  this  country? 

GOLD    STOCK   OF    THE   UNITED   STATES. 

Mr.  Eckels.  I  think  there  is  over  $700,000,000.  The  estimate  of  the 
Director  of  the  Mint  is  not  at  all  high,  and  my  information  comes  from 
an  investigation  made  in  June  last  of  the  amount  of  gold  held  by  the 
individual  banks,  national,  State,  savings,  and  private  ones.  In  their 
returns  the  kinds  of  cash  which  they  held  were  separated.  There  was 
at  that  time,  as  I  remember  it,  about  $420,000,000  in  gold  in  the  banks. 

Mr.  Newlands.  Exclusive  of  the  Treasury  ? 

Mr.  Eckels.  Exclusive  of  the  Treasury.  Then  there  was  the  gold 
in  the  Treasury,  and  an  estimate  was  made  of  the  amount  of  gold 
hoarded,  which  at  that  time  was  a  very  large  amount.  I  know  of  one 
incident  where  in  one  bank,  after  the  election,  one  man  took  from  its 
safe  deposit  vault  $240,000  in  gold  coin  and  put  it  into  the  bank  ])roper, 
and  I  know  of  a  number  of  instances  where  $40,000  and  $50,000  in  gold 
coin  were  taken  out  of  deposit  boxes  m  this  way.    Of  course  there  is 


270  FINANCIAL    AND    BANKING    SITUATION. 

a  large  amount  of  gold  coin  in  circulation  in  the  Pacific  States.  In  all 
the  silver-producing'  States  there  is  held  bj'  the  banks  about  815  of 
gold  to  $1  iu  silver. 

Mr.  iSI^EWLANDS.  What  do  you  estimate  the  total  amount  of  gold  in 
circulation  in  the  Pacific  Coast  States  is  to-day? 

Mr.  Eckels.  I  can  not  tell  that  specifically. 

Mr.  Newlands.  That  is  not  importaiit  if  it  takes  any  time. 

Mr.  Eckels.  It  is  in  my  report.  I  will  be  very  glad  to  give  you  a 
copy  of  it. 

Mr.  Newlands.  The  Mint  Director,  in  his  report  for  1895,  says  that 
the  gold  stock  of  this  country  is  $018,000,000.  Do  you  regard  that  as 
an  underestimate? 

Mr.  Eckels.  I  do. 

Mr.  Newlands.  You  think  there  is  $700,000,000  of  gold! 

Mr.  Eckels.  Yes;  especially  now,  in  view  of  the  large  imports  which 
have  occurred  during  the  last  few  mouths. 

Mr.  Newlands.  Assuming  that  we  have  $618,000,000  of  gold  and 
we  have  credit  money  to  the  extent  of  $1,000,000,000  represented  by 
these  various  forms  of  money,  do  you  think  it  desirable  that  the  num- 
ber of  units  in  this  country  should  be  diminished;  do  you  think  we  can 
get  along  with  less  than  $1,600,000,000! 

Mr.  Eckels.  1  think  to-day  there  is  a  redundancy  of  currency. 

AMOUNT  OF  DEPOSITS  IN  THE  BANKS. 

Mr.  Newlands.  No-w,  you  stated  that  the  deposits  in  the  national 
banks  alone  were  $2,000,000,000.  What  is  your  estimate  of  the  total 
deposits  in  all  the  banks  of  the  country? 

Mr.  Eckels.  $5,000,000,000  is  a  rough  estimate.  I  can  tell  what 
they  were  in  the  last  report. 

Mr.  Kewlands.  This  is  in  the  last  report,  October  31;  the  deposits 
of  the  State  banks  were  $6955650,914;  loan  and  trust  companies, 
$586,468,166;  savings  banks,  $1,935,466,468,  and  in  private  banks 
$59,116,378. 

Mr.  Eckels.  Well,  the  aggregate  of  that  is  about  $5,000,000,000, 
in  dei)osits,  isn't  it! 

Mr.  Newlands.  Yes,  I  think  so.  It  is  not  important  as  to  the  exact 
amount.  It  is  between  $4,000,000,000  and  $5,000,000,000,  not  exceeding 
$5,000,000,000  and  not  probably  less  than  $4,000,000,000. 

Mr.  Eckels.  I  think  it  is  certainly  $5,000,000,000. 

Mr.  Newlands.  You  think  it  is  certainly  $5,000,000,000? 

Mr.  Eckels.  Yes. 

RESERVE  held  AGAINST  DEPOSITS. 

Mr.  Newlands.  Now,  assuming  that  we  have  1,600,000,000  monetary 
units  in  tbe  shape  of  dollars  in  this  country  and  $600,000,000  or  $700,- 
000,000  of  this  is  gold  and  the  other  is  bank  ])aper,  redeemable  in  gold, 
J  ask  you  whether  you  think  tbat  the  banks  of  the  country  ought  to 
have  any  considerable  amount  of  gold  as  reserve  against  this  deposit 
of  $5,000,000,000. 

Mr.  Eckels.  Undoubtedly;  they  have  to  carry  a  reserve. 

Mr.  N]':wLANDS.  AVould  you  think  they  ought  to  keep  it  in  gold; 
would  you  have  them  keep  their  reserves  in  gold! 

Mr.  Eckels.  Yes;  I  would  have  them  keep  it  in  gold. 

The  Chairman.  You  are  talking  about  their  cash  reserve? 


FINANCIAL   AND   BANKING   SITUATION.  271 

Mr.  Eckels.  Oh,  yes. 

Mr.  Newlands.  About  liow  much  do  you  think  they  ought  to  keep  ? 

Mr.  Eckels.  It  has  been  found  that  the  necessary  amount  of  reserve 
to  be  hekl  against  deposits  in  what  are  termed  reserve  cities  is  25  per 
cent  of  the  individual  deposits  and  15  per  cent  in  phices  not  reserve 
cities. 

Mr.  Newlands.  What  would  you  say  is  the  average  amount  re- 
quired ? 

Mr.  Eckels.  The  average  amount  would  be  between — you  can  not 
well  draw  an  average. 

Mr.  Newlands.  Would  you  say  IG,  18,  or  20  per  cent? 

Mr.  Eckels.  Eighteen  per  cent.  They  do  hold  a  larger  reserve  than 
that,  as  a  general  thing. 

Mr.  Newlands.  We  have  here  the  statement  that  there  are  $5,000,- 
000,000  of  deposits  in  this  country.  Now,  the  question  is,  how  much 
gold  should  these  banks  hold  against  these  deposits  as  reserves. 

The  Chairman.  He  has  answered  that. 

Mr.  i>rEWLANDS.  Very  well,  I  am  going  on.  He  has  just  answered 
that  question.  JSTow,  you  say  about  an  average  of  18  per  cent  in  gold 
would  be  sufficient "? 

IVIr  EckIjLS    Yes 

Mr!  I^Tewlands.  :N'ow,  18  per  cent  of  $5,000,000,000  would  be  $900,- 
000,000  of  gold  as  reserve  for  the  deposits. 

A   SAFE   reserve. 

Mr.  Eckels.  The  national  banks  hold  an  average  of  about  18  per  cent. 

Mr.  Newlands.  And  that,  you  say,  is  safe? 

Mr.  Eckels.  Yes,  T  think  that  is  a  safe  reserve. 

Mr.  Newlands.  Eequiring  $900,000,000  in  gold? 

Mr.  Eckels.  Yes. 

Mr.  ISTewlands.  ISTow,  we  have  also  out,  say,  $1,000,000,000  paper 
money.  What  would  you  regard  as  a  safe  gold  reserve  to  hold  against 
that? 

Mr.  Eckels.  The  national-bank  currency  is  taken  care  of  very  satis- 
factorily by  a  5  per  cent  redemption  fund.  You  can  not,  Mr.  Newlauds, 
estimate  that  the  same  amount  of  money  as  a  redemption  money  is 
necessary  for  the  current  redemption  of  your  notes  as  for  deposits, 
because  people  do  not  care  to  carry  metallic  money,  and  they  do  not 
carry  it,  and  they  will  not  carry  it.  They  only  want  to  know  that  when 
they  go  to  the  bank  of  issue  they  can  have  their  notes  redeemed. 

Mr.  Newlands.  Then  you  have  5  per  cent  more  needed  as  a  reserve 
for  the  notes.  That  5  per  cent  on  $1,000,000,000  is  $50,000,000.  The 
total  gold  reserve  of  the  country,  then,  would  be  $950,000,000. 

Mr.  Eckels.  Undoubtedly  that  would  be  so  upon  the  estimate  made 
But  it  must  be  remembered  that  when  the  point  is  reached  where  it 
is  all  bank  credit  currency,  the  legal-tender  obligations  have  been 
exchanged,  and  the  Sherman  notes  have  been  converted  into  gold,  and 
the  additional  necessary  gold,  if  any  is  needed,  will  have  been  imported 
into  the  country.     So  the  gold  in  the  country  has  been  increased. 

Mr.  Newlands.  Will  you  tell  me,  Mr.  Eckels,  where  you  are  to  get 
this  extra  amount  of  gold  from  ? 

Mr.  Eckels.  Get  it  wherever  there  is  a  surplus — and  there  is  always 
a  surplus  somewhere— Just  as  England  got  gold  from  France,  the 
necessary  surplus,  to  carry  on  the  Bank  of  England  when  confronted  by 
the  Baring  difficulty. 


272  FINANCIAL    AND   BANKING    SITUATION. 

Mr.  Kewlands.  Xovt,  tlien,  let  me  call  your  attention  to  the  Mint 
Directoj's  rei)ort.  His  report  shows  that  in  England,  France,  and  Ger- 
many ah)ne  one-half  of  the  gold  in  the  world  is  at  the  present  time 
located,  $2,000,000,000,  and  that  the  other  half  of  the  gold  is  scattered 
around  the  rest  of  the  world — part  of  it  is  in  Kussia^  part  of  it  iu 
Austria,  part  of  it  in  this  country,  and  a  little  of  it  in  other  countries. 
Assuming  that  82,000,000,000  of  gold  are  required  for  the  business  of 
England,  France,  and  Germany,  do  you  think  the  other  $2,000,000,000 
is  enough  f(n'  all  the  rest  of  the  world? 

Mr.  Eckels.  That  is  an  assumption.  Let  me  ask  you  a  practical 
question.  Have  you  ever  known  a  time,  Mr.  Newlands,  when  we  wanted 
gold  iu  this  country  that  we  could  not  get  it  if  Ave  were  willing  to  pay 
for  it? 

Mr.  Newlands.  That  involves  a  long  answer,  and  I  do  not  want  to 
take  up  the  time  of  the  committee. 

GOLD   CAN   ALWAYS   BE   OBTAINED. 

Mr.  Eckels.  I  will  answer  that  question  in  this  way;  that  it  does 
not  make  any  difference  whether  that  $2,000,000,000  is  in  England, 
Germany,  France,  China,  or  anywhere  else;  if  we  want  it  we  can  getit 
if  we  are  willing  to  pay  for  it.  We  may  at  times  have  to  pay  more  for 
it  than  at  other  times,  but  there  never  has  been  a  time,  even  during  the 
period  of  the  war,  that  gold  could  not  be  obtained  if  we  paid  the  rate 
charged  for  it.  I  think  that  there  will  always  be  a  sufficient  amount  of 
gold  here  when  it  is  needed,  and  when  it  is  not  needed  it  will  be  else- 
where. It  moves  about.  One  day  it  will  be  in  England,  another  day 
it  will  be  in  Germany,  another  day  it  will  be  in  France,  and  another 
day  it  will  be  here,  but  always  fdling  up  the  vacuum  Avhich  ought  to  be 
tilled,  and  if  that  vacuum  exists  in  the  United  States,  and  tlie  reason 
for  its  filling  exists,  the  experience  of  the  past  i^roves  it  will  be  filled. 

The  amount  also  will  vary.  Your  estimate  of  $050,000,000  may  be 
just  enough  to-day,  entirely  too  much  to-morrow,  and  wholly  insufficient 
the  next  day.  It  is  always  dependent  upon  changes  in  trade,  conditions 
of  credit,  and  other  circumstances  of  a  like  character. 

Mr.  Neavlands.  Suppose  we  should  go  to  that  kiiul  of  a  banking  sys- 
tem to-day,  and  require  $!>50,000,000  in  gold.  Plaving  only  $700,000,()00 
we  would  require  $250,000,000  more.  Now,  looking  all  over  the  world, 
from  what  country  w<mld  you  get  it? 

Mr.  Eckels.  We  could  get  it  from  England,  from  France,  from  Ger- 
many, just  as  the  banks  got  it  six  months  ago  when  they  undertook  to 
maintain  the  gold  reserve  iu  the  Treasury,  and  as  they  have  done  before 
and,  as  I  said  earlier,  the  Chicago  banks  did  in  the  i)anic  of  1803.  They 
sent  over  and  obtained  it  abroad. 

Mr.  NewlaNDS.  I  presume  they  could  get  it  if  they  bid  high  enough 
for  it. 

Mr.  Eckels.  Yes;  it  would  always  come  where  it  Avas  needed  by 
paying  the  price  it  commanded. 

Mr.  Newlands.  In  other  words,  while  we  would  have  to  increase  our 
reserves  from  $700,000,000  to  $950,000,000,  your  assumption  is  that  gold 
always  could  be  gotten  somewhere  by  bidding  enough  for  it,  and  that, 
on  the  other  hand,  those  countries  from  which  we  get  this  gold  could 
get  it,  in  their  turn,  by  bidding  enough  for  it  when  they  needed  it. 

The  Chairman.  Is  he  correct  in  his  assumption  that  we  need 
$900,000,000  in  gold. 

Mr.  Eckels.  I  have  not  made  the  estimate;  that  is  the  estimate  of 


FINANCIAL   AND    BANKING    SITUATION.  273 

Mr.  Newlauds.  It  really  makes  little  if  any  difference,  however,  what 
the  amount  is.  The  fact  remains  that  when  it  is  needed  hero  we  could 
iiet  it,  and  if  it  is  not  needed  here  then  it  goes  where  it  is  needed, 
because  capital  only  remains  in  the  place  where  it  is  needed  and  it 
leaves  when  it  is  not  needed. 

Mr.  Newlanus.  England,  France,  and  Germany  are  the  greatest 
cieditor  nations  of  the  world,  are  they  not"? 

j\Ii'.  Eckels.  I  believe  so. 

Mr.  Newlands.  They  have  vast  deposits  also  in  their  banks,  haven't 
they  ? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  They  are  obliged  to  keep  certain  reserves? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Now,  then,  if  as  a  matter  of  fact  you  find,  running 
over  a  period  of  years,  that  jbhose  three  countries  have  kept  on  hand 
about  $2,000,000,000  in  gold,  would  you  not  conclude  that  was  the 
amount  of  gold  that  they  regard  as  proper  and  necessary  as  the  basis 
for  their  deposits  and  reserve  for  their  note  issues? 

Mr.  Eckels.  I  should  think  that  that  was  their  estimate,  but  at  the 
same  time,  if  they  had  enough  surplus  of  gold  to  furnish  people  elsewhere 
heretofore  who  needed  it,  l  should  think  they  could  continue  to  do  so. 

Mr.  Newlands.  Have  you  observed,  during  the  past  hve  or  six 
months,  that  when  we  were  selling  wheat  abroad,  and  the  price  was 
advancing  because  of  the  famine  of  wheat  in  India,  there  was  a  move- 
ment in  England  to  check  the  export  of  gold  to  this  country? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Why  did  England  seek  to  check  that  export;  was  it 
not  because  she  thought  she  required  the  gold  she  had  on  hand? 

Mr.  Eckels.  She  thought  she  had  more  need  for  it  there  than  we  did 
here,  but  she  could  not  do  it. 

Mr.  isEM"LANDS.  And  she  raised  the  discount  from  2  or  3  per  cent  up 
to  5  per  cent. 

Mr.  Eckels.  But  she  could  not  keep  the  gold  from  coming  over  here 
because  there  was  more  demand  for  it  here  and  they  wanted  something 
else  we  had  more  than  they  wanted  the  gold. 

RATE    OF   DISCOUNT    OF   BANK   OF   ENGLAND. 

Mr.  Newlands.  What  is  the  normal  rate  of  discount  of  the  Bank  of 
England? 

Mr.  Eckels.  I  could  not  tell. 

Mr.  Newlands.  I  believe  it  is  about  2  per  cent. 

Mr.  Eckels.  Between  li  and  2  per  cent. 

Mr.  Newlands.  The  discount  recently  has  been  4  and  5  per  cent? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  That  rate  of  discount  was  raised  to  check  the  export 
of  gold  from  that  country  to  this  country? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  They  needed  the  gold  and  they  wanted  to  hold  the 
gold  ? 

Mr.  Eckels.  But  they  needed  wheat  more  than  they  did  gold. 

Mr.  ISTewlands.  So  you  say  their  gold  came.  It  did  not  come  in  the 
same  quantities,  however,  as  it  would  had  not  the  rate  of  discount  been 
raised  ? 

Mr.  Eckels.  That  is  so. 

Mr.  Newlands.  Then,  in  order  to  get  that  gold.  Just  as  soon  as 
cur 18 


274  FINANCIAL    AND    BANKING    SITUATION. 

they  raised  that  rate  didn't  it  check  the  rise  in  the  value  of  our  wheat — 
didirt  wo  have  to  offer  luoro  wheat  for  their  gold  to  get  it? 

Mr.  Eckels.  Wheat  continued  to  rise  in  price. 

Mr.  Xewla^'Ds.  But  would  it  not  have  risen  more  in  i^rice  if  it  had 
not  been  for  that  raise  of  the  discount  in  the  rate  of  the  Bank  of 
England  ? 

Mr.  Eckels.  No,  I  do  not  think  so. 

Mr.  ]SrEWLANDS.  Didn't  that  raise  make  gold  harder  for  us  to  get  ayid 
wheat  easier  for  them  to  get  ? 

Mr.  Eckels.  No,  I  think  it  made  the  wheat  harder  to  get,  because 
they  had  to  pay  more  for  the  money  to  get  it  with. 

Mr.  Newlands.  And,  on  the  contrary,  we  wanted  gold  instead  of 
wheat;  that  would  make  us  offer  more  wheat  to  get  gold,  would  it  not! 

Mr.  Eckels.  Yes,  if  conditions  Avere  reversed,  I  suppose  that  is  so. 

Mv.  Newlands.  I  agree  with  you,  that  if  England  raised  the  rate 
of  discount  to  5  per  cent  we  could  only  get  it  by  making  the  use  of  gold 
more  profitable  here. 

Mr.  Eckels.  And  making  what  we  have  more  desirable  there. 

Mr.  Johnson.  I  respectfully  submit,  Mr.  Chairman,  that  the  time  of 
the  Comptroller  is  valuable  to  us  as  well  as  to  himself,  and  that  in  this 
examination  of  hiui  there  ought  to  be  a  fair  division  of  time  among  the 
members  of  the  committee.  I  have  gotten  through  with  what  I  had  to 
ask,  and  I  submit  that  the  gentleman  from  Nevada  has  exhausted  his 
time  and  that  other  gentlemen  should  now  be  allowed  to  ask  questions. 
The  time  is  limited. 

Mr.  Newlands.  The  committee  has  been  exceedingly  courteous  to 
me,  and  I  am  very  much  obliged  for  the  courtesy.  It  seems  to  me  that 
this  is  a  most  important  question.  Everybody  admits  the  candor  and 
the  sincerity  and  ability  of  the  Comptroller.  We  are  here  for  informa- 
tion and  not  here  as  ])artisans,  and  it  seems  to  me  that  we  can  make  no 
inquiries  so  pertinent  as  the  sufficiency  of  the  gold  stock  in  this  and 
other  countries  for  the  reserves  of  banks. 

The  Chairman.  This  is  not  a  meeting  for  general  inquiry. 

Mr.  Newlands.  Upon  this  very  question  1  insist  I  am  confining 
myself  to  the  question.  I  would  like  at  some  future  time  to  pursue 
this  inquiry,  when  convenient  to  the  committee,  for  half  an  hour  or  an 
hour  longer,  and  I  trust  it  will  not  swell  into  the  four  or  five  days  to 
which  the  chairman  has  alluded. 

The  Chairman.  I  have  no  doubt  but  that  it  will  swell  into  four  or 
five  days,  however. 

Mr.  Newlands.  I  have  doubt  of  it.  I  have  doubts  whether  it 
assumed  the  proportions  the  chairman  has  mentioned  upon  the  other 
occasion. 

jMr.  Eckels.  I  will  be  very  glad  to  come  before  the  committee  at 
some  future  time  to  discuss  that  question.  Of  course  you  understand 
that  this  is  not  my  field;  that  is  the  fiohl  which  shimld  be  occupied  by 
the  Secretary  of  the  Treasury,  unless  it  is  brought  in  in  connection  with 
that  which  J  think  is  essential  to  putting  the  country  in  a  condition  for 
a  proper  banking  measure.  I  rei>eat  my  former  statement,  that  unless 
these  other  things  are  gotten  out  of  the  way  a  banking  bill  simjdy 
relieves  us  of  a  large  inconvenience  and  some  loss,  but  that  it  can  not 
accomplisli  a  permanent  good  until  we  put  ourselves  on  a  basis  of  not 
having  the  (lovernment  issue  credit  currency,  whether  it  be  in  the 
shai)e  of  ])aper  or  dei)reciated  silver.  If  thought  best  I  would  at  some 
future  time  be  very  ghul  to  continue  the  discussion  of  this  and  kindred 
questions  involved  in  our  financial  situation. 


FINANCIAL    AND    BANKING    SITUATION.  275 


BRANCH    liANKS. 

Mr.  Cox.  I  would  like  to  ask  one  question  of  the  Comptroller.  To 
get  back  to  the  question  of  branch  banks,  which  we  were  discussing  this 
morning,  if  I  have  got  your  idea  about  that,  you  would  try  to  supply 
the  scarcity  of  money  at  certain  times  by  branch  banks  of  large  banks — 
isn't  that  it? 

Mr.  Eckels.  Yes.  The  reason,  Mr.  Cox,  that  in  these  communities 
independent  banks  can  not  be  established  is  because  they  have  not  the 
necessary  surjilus  capital  for  that  purpose,  and  therefore  must  depend 
on  outside  aid. 

Mr.  Cox.  I  api)reciate  fully  the  remarks  you  made  about  that. 

Mr.  Eckels.  But  they  could  import  capital  from  large  outside  banks 
through  such  branches.  These  branches  could  be  conducted  very  much 
more  economically  than  independent  banks  in  those  communities,  as 
the  investment  of  money  in  capital  would  not  be  necessary. 

Mr,  Cox.  I  ap])reciate  your  idea  very  fully. 

Mr.  Eckels  (continuing).  And  thegeneral  banking  machinery  would 
be  found  to  be  cheaper,  and  therefore  the  money  rates  would  be 
cheaper. 

Mr.  Cox.  You  are  working  at  the  same  thing  I  am. 

Mr.  Johnson.  I  think  the  answer  is  somewhat  misleading  when 
taken  in  connection  with  an  answer  the  Comptroller  made  to  a  question 
I  asked  him — that  the  more  inexpensive  the  notes  are  to  the  banks,  the 
more  likelihood  there  will  be  of  these  agricultural  communities  having 
a  plenty  of  money. 

Mr.  Eckels.  Anything  consistent  with  safety  which  tends  to  cheapen 
the  rate  of  cost  to  institutions  which  are  issuing  money  benefits  the 
people  who  are  getting  that  money,  as  it  means  for  them  lessened  rates 
of  interest  and  more  investible  capital. 

Mr.  Johnson.  For  instance,  the  lack  of  profits  might  deter  a  bank 
from  being  established  in  a  certain  community,  whereas,  if  there  was  a 
greater  profit  in  circulating  notes  a  bank  would  be  established  there. 

Mr.  Cox.  Let  me  draw  your  attention  to  the  state  of  facts  that  exists. 
Take  the  rural  districts  of  my  country.  Their  credit  consists  in  the 
real  estate  and  property.  That  is  what  they  have  now.  If  you  estab- 
lish a  branch  bank  from  one  of  the  large  banks  and  they  require  cer- 
tain bonds  and  stocks  convertible  into  cash  any  day  upon  the  market, 
can  that  ijossibly  give  our  folks  any  relief? 

TROVINCE    OF    C03IMERCIAL    BANKS. 

Mr.  Eckels.  I  think  if  the  branches  are  established  in  such  places 
and  it  is  found  that  the  people  there  are  individuals  who  pay  their 
debts  and  have  bankable  assets  which  can  be  converted  at  any  time, 
there  will  be  no  difficulty  about  their  borrowing.  Eight  here  permit  me 
to  say,  in  this  connection,  Mr.  Cox,  that  a  commercial  bank  can  not  take 
commercial  deposits  and  invest  those  commercial  deposits  in  fixed  loans 
and  investments  without  ultimately  breaking  the  bank.  The  province 
of  savings  banks  and  trust  companies  is  fixed  investments,  while  the 
province  of  commercial  banks  is  the  conduct  of  daily  commercial 
business. 

Mr.  Cox.  I  appreciate  that  very  much;  but  all  through  that  country 
is  a  system  of  State  banks  without  issue.  They  take  their  mortgages 
and  make  their  loans,  and  most  of  them  are  made  on  the  question  of 
security,  without   any  collateral  whatever.     It  is   personal   security. 


276  FINANCIAL   AND    BANKING    SITUATION. 

jS^ow,  when  you  establish  your  branch  bank,  would  it  not  be  better, 
under  all  the  circumstances  of  the  case,  to  leave  those  communities 
alone,  under  the  State  regulations,  to  control  tlieir  own  matter '? 

Mr.  Eckels.  Of  course  if  a  community  would  not  support  a  branch 
bank  the  bank  would  not  stay  there. 

STATE    BANKS. 

Mr.  Cox.  My  question  is  this:  Each  community  J  udgiug  of  its  own 
wants  and  necessities,  Avould  it  not  be  better  to  leave  those  communities 
under  the  State  regulations  to  establish  their  own  institutions'^ 

Mr.  Eckels.  I  think,  so  far  as  I  know,  that  nobody  undertakes  to 
interfere  with  State  regulations  of  State  banks  or  anything  of  that  kind, 
except  in  the  matter  of  note  issue.  The  regulation  of  note  issues  is 
based  upon  the  ground  that  at  present,  at  least,  the  Government  is  pri- 
marily, or  ultimately,  responsible  for  the  redemption  of  the  notes.  The 
demands  of  trade  and  commerce  are  such  that  there  would  be  a  serious 
inconvenience,  even  though  no  loss  might  arise,  if  the  banks  of  each 
State  issued  their  own  different  character  of  moneys. 

Mr.  Cox.  Your  idea  and  mine  is  the  same  on  one  proposition — that 
this  issue  ought  not  to  be  based  on  bonds. 

Mr.  Eckels.  I  think  1  said  that  I  thought  the  correct  banking  prin- 
ciple was  to  issue  bank  notes  against  bankable  assets.  In  this  matter, 
however,  you  are  obliged  to  deal  Avith  this  practical  fact,  that  the  aver- 
age business  man  in  this  country  has  never  known  anything  but  a  cur- 
rency based  on  securities.  A  new  currency  system  must  at  the  outset 
be  completely  enthroned  in  the  confidence  of  tlie  i)eople.  Bei-ause  of 
this  you  can  not  undertake  to  substitute  in  its  entirety  a  wholly  unse- 
cured currency  at  the  start  for  a  currency  that  is  secured,  but  ultimately 
I  think  tlie  point  could  be  reached  through  gradual  processes,  just  as 
any  other  thing  is  done,  by  which  the  largest  portion  of  the  banking 
currency  could  be  issued  against  credit  and  be  as  readily  accepted  by 
the  people.  It  would  of  course  require  a  high  order  of  banking  and  a 
high  grade  of  assets. 

Mr.  Cox.  I  api^reciate  that  very  much,  but  let  me  draw  your  mind  to 
this  proposition  :  Suppose  a  bank  is  organized  in  my  State  under  State 
authorities  with  the  right  to  issue  its  notes  under  proi)er  restrictions — 
we  will  assume  proper  restrictions  are  established — do  you  think  it  pos- 
sible that  any  State  could  ])ut  its  notes  out  over  its  counter  unless  as 
well  secured  as  any  other  circulation  out  to-day? 

Mr.  Eckels.  I  think,  Mr.  Cox,  there  is  a  great  deal  of  unnecessary 
fear  about  State  bank  note  issues,  but  the  fact  that  it  does  exist  is 
the  fact  you  have  to  reckon  with.  I  have  no  doubt  that  Just  as  the 
good  State  banks  in  Kew  York,  Louisiana,  Indiana,  Ohio,  and  Illinois 
and  elsewhere  maintained  the  payment  in  gold  of  their  notes  when  per- 
mitted to  issue  them,  they  now  would  do  thr  same  thing,  and  I  have  no 
doubt  the  State  would  throw  about  them  every  possible  safeguard  as 
far  as  regulation  and  safety  are  concerned.  But  here  is  a  country  of 
vast  extent,  embracing  many  different  States  that  with  the  different 
systems  established  would  tend  to  create  a  constant  inconvenience 
without  giving  in  return  any  adequate  resulting  benefits. 

Mr.  Cox.  Assume  that  your  idea  is  correct.  Inconvenience  would 
exist  and  want  of  confidence  in  that  circulating  medium.  Now,  then, 
whom  does  that  hurt? 

Mr.  Eckels.  ^Vhy,  it  would  hurt  your  own  i)eople  most  of  all, 
because  it  would  withdraw  from  them  the  credit  extended  to  them  by 


FINANCIAL    AND    BANKING    SITUATION.  277 

those  people  wlio  have  capital  they  wish  to  invest  and  who  are  doiiif? 
business  with  them  in  the  knowledge  that  the  return  received  will  be 
exactly  in  kind  and  character  of  the  tliinj:?  loaned. 

Mr.  Cox.  Is  it  a  part  of  this  Government  to  take  care  of  the  credit 
of  my  people"? 

Mr,  Eckels.  It  is  in  a  general  way,  in  not  ])ermitting  it  to  be  unnec- 
essarily injured. 

The  Chairman.  In  estimating  the  amount  of  redemption  money 
needed  in  any  banking  system  in  any  country  can  the  estimate  be  made 
Avith  reasonable  accuracy  on  any  other  facts  than  the  actual  doing  of 
the  thing  proposed  by  the  banks? 

Mr.  Eckels.  They  would  arrive  at  it  the  same  way  as  actuaries  in 
insurance  companies  arrive  at  the  question  as  to  hoiv  much  they  should 
charge  on  policies. 

CREDIT    CURRENCY. 

Mr.  Spalding.  I  have  listened  with  a  great  deal  of  interest  to  you, 
and  I  should  judge — I  want  to  see  whether  I  am  right — that  at  the 
X^resent  time  you  would  not  recommend  an  issue,  or  a  banking  bill  that 
would  allow  the  issue,  of  notes  on  a  credit  basis  entirely  on  the  assets 
of  the  bank  ? 

Mr.  Eckels.  Not  wholly;  no. 

Mr.  Spalding.  You  have  stated  the  reasons.  I  wanted  to  see 
whether  I  had  the  idea. 

The  Chairman.  Just  as  safe  as  guarantees  of  bonds? 

Mr.  Eckels.  1  think  it  amounts  to  the  same  thing. 

Mr.  Spalding.  For  instance,  the  assets  of  the  bank  are  how  held 
for  the  depositor,  aiul  if  there  was  an  issue  of  credit  currency  it  would 
take  away  the  assurance  of  the  depositor. 

Mr.  Eckels.  The  only  ditticulty  would  be  in  having  the  minds  of  the 
depositor  and  the  note  holder  always  kept  right.  It  must  be  remem- 
bered that  there  have  been  5,0G0  national  banks  established,  and  there 
have  been  but  330  bank  failures.  Nobody  has  lost  anything  through 
a  bank  note. 

Mr.  Spalding.  Because  they  are  guaranteed. 

Mr.  Eckels.  But  national  banks  have  not  failed  because  of  their 
having  bond  securities  preventing  loss  to  note  holders,  but  because 
they  have  been  well  conducted ;  and  I  imagine  it'  these  banks  had  issued 
against  assets  with  the  same  good  management  there  would  not  have 
been  any  more  failures.  The  only  difference  would  have  arisen  irom 
the  public  having  felt  the  same  assurance  of  safety  in  the  notes  of  the 
banks.  A  change  in  the  matter,  of  course,  requires  the  reeducation 
of  the  public. 

REDEMPTION   AGENCIES. 

Mr.  Hill.  Some  years  ago  the  national  banks  made  the  redemptions 
themselves.     Was  it  a  success  or  a  failure? 

Mr.  Eckels.  I  take  it,  from  the  changing  of  the  law,  that  it  did  not 
operate  well. 

Mr.  Hill.  Do  you  think  it  could  be  made  successful  at  the  present 
time "? 

Mr.  Eckels,  I  would  not  be  surprised  if  under  proper  circumstances 
there  might  be  redemption  agencies,  but  they  would  make  redemption 
more  expensive  than  it  is  now. 

Mr.  Hill.  In  that  respect  it  would  be  disadvantaget)us.  It  would 
require  a  larger  reserve  fund,  would  it  notf 


278  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  Probably. 

Mr.  Spalding.  Most  of  the  bills,  except  Mr.  Brosins's  bill,  recommend 
the  issuing  of  notes  on  the  assets  of  the  bank,  and  tliat  is  the  reason 
why  I  ask  the  question — because  we  are  discussing  these  particular 
bills. 

Mr.  Eckels.  I  regret  that  I  am  now  compelled  to  go,  bnt  I  will 
appear  before  the  committee  at  another  time. 

The  committee  thereupon  adjourned. 


Committee  on  Banking-  and  Currency, 

Washington,  D.  6'.,  Monday,  February  1,  1897. 
The  committee  met  at  10.30  a.  m.     Members  present:  The  Chairman 
(Mr.  Walker)  and  Messrs.  Brosius,  Johnson,  Van  Yoorhis,  McCleary, 
Fowler,  Lefever,  Spalding,   Calderhead,  Hill,  Cox,   Stalliugs,   Black, 
iSiewlands,  and  Hendrick. 

Hon.  James  H.  Eckels,  Comptroller  of  the  Currency,  appeared  before 
the  committee  and  resumed  his  statement  begun  on  January  2S,  1897. 

STATEMENT   OF   HON.  JAMES  H.   ECKELS,  COMPTEOiLLER  OF  THE 
CURRENCY— Continued. 

Mr.  Cox.  Mr.  Comptroller,  to  get  at  the  cardinal  principles  you  have 
in  your  mind  for  banking,  as  I  understood  at  the  commencement  of  your 
statement,  the  first  is  to  keep  the  Crovernment  loose  entirely  from  the 
redemption  of  the  notes? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  And  throw  that  upon  the  banks  to  redeem  their  notes'? 
,Mr.  Eckels.  Yes;  after  the  Government  has  gotten  rid  of  its  obliga- 
tions. 

Mr.  Cox.  You  assume  the  Government  has  first  disposed  of  its  obli- 
gations and  then  redemption  shall  be  made  by  the  banks;  that  is  the 
first  i)rincii)le? 

Mr.  Eckels.  Yes;  in  gold. 

Mr.  Cox.  Either  through  the  banks  or  a  proper  agencv  established 
bylaw? 

Mr,  Eckels.  That  is,  the'banks  shall  be  resi)onsible  for  the  redem])tion 
in  gold  of  all  promises  to  pay  which  they  issue. 

Mr.  Cox.  And  you  do  that  through  the  banks  and  not  through  the 
Government  at  all.     That  is  the  first  principle  you  have  announced? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  The  next  point,  as  I  understood  you,  as  the  basis  of 
circulation  you  would  take  at  least  a  considerable  part  of  the  assets 
of  the  bank  : 

I\Ir.  Eckels,  T  think  that  gradually  that  point  could  be  reached,  but 
it  could  not  be  at  the  outset. 

Mr.  Cox.  At  the  outset,  then,  you  would  have  to  have  some  other 
basis? 

Mr.  Eckels.  ]<>ither  the  guaranty  of  the  Government  or  a  basis  of 
security,  although,  as  I  announced,  I  believe  that  the  issuing  of  notes 
against  credit  is  the  theoretically  correct  principje  in  banking.  The 
principal  difiiculty  in  adoi)ting  such  a  course  at  the  outset  lies  in  the 
fact  that  the  i)e()ple  are  not  educated  to  handling  and  believing  in  a 
currency  not  secured  by  a  dejiosit. 


FINANCIAL    AND    BANKING    SITUATION.  279 

Mr.  Cox.  Thcie  arc  two  fuiidiiincntal  ]niucii)les  you  start  out  witli. 
Now,  the  third  one  1  want  to  call  your  attention  to. 

The  CiiAiUMAN.  Let  me  ask  a  question  right  there.  You  mean 
to  say  issuing-  against  the  credits  of  a  bank  without  Government 
guaranty? 

Mr.  Eckels.  1  say,  theoreti(;ally,  I  think  that  is  the  correct  prin- 
ciple. 

The  Chairman.  Under  the  circumstances  you  would  require  a  double 
guaranty? 

Mr.  Eckels.  At  the  outset,  the  Government  .Ljuaranty  or  a  deposit. 

Mr.  Cox.  Those  two  i)rinciples  settled  in  a  bill,  then  1  want  to  ask, 
if  you  issue  your  circulation  u})on  the  assets  of  a  bank,  to  what  extent 
do  you  think  you  could  go  with  i)erfect safety  upon  that? 

Mr.  Eckels.  1  would  not  want  to  undertake  more  than  25  per  cent. 
That  I  would  regulate  by  a  tax,  too. 

Mr.  Cox.  Kegulate  by  a  tax,  do  you  mean,  or  provide  a  safety  fund? 

Mr.  Eckels.  1  would  have  a  safety  fund  for  that,  too,  but  I  also 
would  impose  a  tax  upon  that  part  of  the  circulation,  so  that  it  would 
not  remain  out  any  longer  than  it  was  absolutely  necessary  and  that 
banks  would  not  issue  that  character  of  currency  in  excess. 

Mr.  Hill.  Do  you  not  think  that  the  elfect  of  a  compulsory  gold 
redemption  on  demand  by  the  banks  would  of  itself  be  a  sutficient 
restrictive  without  a  tax"? 

Mr.  Eckels.  AVell,  yes;  I  have  no  doubt  it  would,  but 

Mr.  Hill.  Then  why  put  a  tax  on? 

Mr.  Eckels.  1  would  simply  do  that  at  the  outset  as  an  additional 
precautionary  measure. 

Mr.  Hill.  I  mean  if  you  limit  it  to  25  i)er  cent  of  the  capital? 

Mr.  Eckels.  Possibly  the  tax  would  not  be  necessary  at  all. 

CIRCULATION    TO    PAR    A'ALUE    OF   BONDS. 

Mr.  Cox.  One  other  question.  This  is  rather  disconnected  from  the 
point  here,  but  we  have  a  bill  which  has  i)assed  this  committee,  and 
which  is  in  the  House,  which  proposes  to  permit  the  banks  to  take  out 
circulation  up  to  the  par  value  of  the  bonds.  That  has  been  recom- 
mended, as  you  know,  several  times  by  you  and  your  predecessors  in 
otitice.  If  this  privilege  is  given  to  the  l3anks  to  take  out  circulation 
up  to  the  par  value  of  the  bonds,  do  you,  or  do  you  not,  tliink  it  wise 
that  the  law  ought  to  be  compulsory  to  make  them  take  out  circulation 
up  to  the  par  value  of  the  bonds  ? 

Mr.  Eckels.  No,  1  do  not  believe  any  law  ought  to  be  compulsory  as 
to  the  amount  of  circulation  that  should  be  taken  out  or  the  amount 
that  should  be  retired,  for  if  a  law  is  placed  on  the  statute  books  to 
that  effect  the  element  of  elasticity  is  thereby  removed  and  a  hard  and 
fast  line  is  fixed  by  saying  instead  of  the  banks  regulating  the  amount 
of  circulation  which  should  be  issued  according  to  the  business  needs 
of  the  country,  as  they  see  it  from  day  to  day,  they  shall,  irrespective 
of  those  needs,  keep  out  so  much  circulation. 

Mr.  Johnson.  And,  as  I  understand  it,  the  business  needs  of  the 
country  should  be  the  criterion  as  to  the  amount  to  be  put  out  ? 

Mr.  Eckels.  Yes,  entirelj'^  so. 

Mr.  Hendrick.  1  Avish  to  ask  a  question  of  the  chairman.  I  thought 
it  was  understood  Friday  afternoon,  when  we  adjourned,  that  when  we 
met  to-day  the  Comptroller  w^as  to  (;ontiuue  his  suggestions  without 
interruption.    Have  we  changed  that  rule? 


280  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  Before  goiug  on  further  I  wisli  to  be  permitted  to  make 
a  personal  statement.  I  have  come  before  the  Banking  and  Currency 
Committee  at  the  request  of  the  committee,  not  for  the  purpose  of  pre- 
senting a  bill  of  my  own  or  with  any  set  plan  or  statement,  because  I 
have  not  prepared  either  a  bill  or  a  statement.  My  only  purpose  is,  if 
I  happen  to  have  any  knowledge  upon  the  subject  that  it  is  desiral)le 
to  obtain,  to  answer  such  questions  as  may  be  put  to  me  upon  the  lines 
which  suggest  themselves  to  the  members  of  the  committee.  I  wish  to 
cooperate  with  them  in  gathering  information  that  will  enable  them  to 
arrive  at  a  conclusion  as  to  what  ought  to  be  done  in  the  construction 
of  a  safe  and  practical  bill.  I  think  pertinent  to  the  matter  is  any 
question  which  affects  our  present  monetary  condition.  My  idea  has 
always  been  tliat  when  the  difficulties  under  which  the  country  labors 
from  a  financial  standpoint  are  solved  they  will  be  solved  through  the 
agency  of  a  properly  constructed  banking  bill.  It  is  through  that 
agency  the  country  must  obtain  relief  from  the  difficulty  which  the 
Treasury  Department  has  in  handling  its  demand  obligations,  and  also 
the  difliculties  which  it  labors  under  from  its  silver  currency.  Holding 
to  this  view,  it  seems  to  me  before  a  bill  can  be  properly  drawn 
members  must  inform  themselves  upon  not  only  one  branch  of  the 
country's  monetary  affairs,  but  upon  every  branch,  becanse  each  one  is 
dependent  upon  the  other.  If  one  evil  is  corrected  and  half  a  dozen 
other  evils  are  not,  the  country  will  not  be  much  better  off  than  it  was 
at  the  start.  As  all  these  questions  are  independent,  the  Banking  and 
Currency  Committee  ought,  in  my  judgment,  to  give  this  inquiry  a  very 
wide  range,  and  when  it  obtains  all  tlie  information  possible  it  can  then 
construct  a  measure  which  will  meet  the  needs  of  the  country. 

COMPULSORY   NOTE    ISSUES. 

Mr.  Cox.  I  want  to  state,  Mr.  Chairman,  that  this  question  I  am 
propounding  to  j\Ir.  Eckels  is  fundamental  and  included  in  the  bills 
before  us  and  I  am  trying  to  see  how  it  will  work.  IS^ow,  going  back  to 
the  last  question  I  asked  you  when  I  put  the  proposition,  "Would  it  be 
wise  to  make  the  banks  take  out  the  circulation  if  we  gave  them  tlie 
right  to  issue  up  to  the  par  value  of  the  bonds,"  your  answer  to  me  I 
fully  appreciate,  but  I  do  not  think  you  quite  got  my  idea.  That  is, 
if  we  gave  the  riglit  to  issue  up  to  the  i)ar  value  of  the  bonds  and  they 
deposited  the  bonds  they  take  out  circulation  IVoni  the  Ooverumeut 
under  that  system? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  iTow,  I  do  not  mean  to  say  they  shall  put  that  into  circula- 
tion, but  I  mean  to  say  they  sliall  i)ut  it  into  the  banks.  The  object  of 
that  is  to  prevent  quite  a  number  of  these  banks  from  depositing  the 
bonds  and  taking  out  no  circulation  at  all? 

Mr.  Eckels.  1  think  there  are  only  seven  or  eight  banks  in  the  system 
which  deposit  the  bonds  the  law  requires  of  them  on  the  organization 
of  a  bank  and  do  not  take  out  any  curreney.  It  will  be  found,  with  the 
exception  of  the  seven  banks  mentioned,  that  circulation  is  taken  out, 
though  not  in  very  large  amounts;  but  the  impression  that  I  received 
from  your  question  was  that  if  the  banks  were  permitted  to  issue  up  to 
the  i)ar  value  of  tlie  bonds,  there  should  be  a  compulsory  statute  which 
would  make  it  absolutely  incumbent  upon  them  to  take  out  the  amount 
of  cir(!ulation  to  which  they  Avould  be  entitled  under  the  ])revious  bank- 
ing act. 

Mr.  Cox.  Then,  to  bring  the  i)oint  riglitout,  that  would  not  force  the 
banks,  as  a  matter  of  fact,  to  pay  their  money  out  over  their  counters. 


FINANCIAL    AND    BANKING    SITUATION.  281 

I  am  transferring'  circulation  up  to  tlie  par  value  of  the  bonds  out  of 
the  Government  vaults  into  the  vaults  of  the  banks,  and  the  object  is  to 
have  the  money  there,  so  wlien  an  emergency  arises,  if  it  arises,  of 
course  they  can  apply  to  the  (lovernment  and  get  it,  but  it  prevents 
any  bank  from  depositing  bonds — and  I  know  there  are  not  many  of 
them — and  taking  out  no  circulation  at  all.  That  is  the  idea  I  had  in 
the  matter,  and  I  wanted  to  see  how  it  would  work. 

Mr.  Spaldinct.  I  simi)ly  want  to  ask  a  question  in  line  of  his  thought. 
What  serious  objection,  in  your  mind,  would  there  be  to  authorizing  the 
issuing  u\)  to  the  par  value  of  the  bonds,  and,  say,  50  per  cent  of  the  sur- 
plus of  the  bank  to  be  issued  as  a  credit  currency,  to  be  a  first  lien  on 
all  the  assets  of  the  baukf  It  would  be  an  inducement  for  a  bank  to 
keep  a  surplus,  and  there  would  be  some  profit  in  it,  and  it  would  limit 
the  amount  of  circulation  to  the  par  value  of  the  bonds  and  50  per  cent 
of  the  surplus  of  said  bank  ? 

Mr.  Eckels.  I  think  there  might  be  danger  of  inflation.  I  think  if 
you  start  out  with  too  large  a  percentage  at  the  outset 

Mr.  Spalding.  You  can  cut  it  to  25  per  cent. 

Mr.  Eckels  (continuing).  That  there  would  be  possibly  some  doubt 
as  to  the  ability  of  the  bank  to  redeem  its  notes. 

Mr.  Spalding.  That  is  the  doubt  I  have  in  my  mind. 

ABILITY   OF   BANK   MANAGERS. 

Mr.  Eckels.  The  whole  gist  of  the  thing,  as  far  as  credit  currency 
is  concerned,  however,  turns  really. upon  the  ability  with  which  the 
banks  are  managed.  One  of  the  greatest  of  economic  writers  has 
called  attention  to  the  fact  that  a  great  many  years  ago  a  very  large 
number  of  the  banks  of  England  failed  and  there  was  a  total  loss  to 
the  note  holders  of  notes  issued  by  them  against  the  assets  of  the 
bank.  At  the  very  saine  time  there  was  not  a  single  bank  in  Scotland 
failed,  although  the  notes  of  the  banks  of  Scotland  were  issued  in  the 
same  way  as  the  notes  of  the  banks  in  England  against  credits.  When 
asked  for  an  explanation,  he  said  the  difference  was  in  the  fact  that  the 
banks  of  Scotland  which  did  not  fail  were  conducted  by  bankers  who 
understood  their  business,  while  the  banks  of  England  which  did  fail 
were  in  the  hands  of  bankers  who  did  not. 

Mr.  Fowler.  That  is,  the  credit  part  of  it. 

Mr.  Eckels.  Yes ;  the  credit  part  of  it.  While  I  have  no  doubt  that 
a  large  majority  of  the  people  here  who  are  engaged  in  the  l)anking  busi- 
ness could  issue  bank  notes  without  a  single  dollar  of  deposited  security, 
and  maintain  themselves,  the  factor  which  would  make  such  course  a 
possible  cause  of  weakness  would  be  the  fact,  as  previously  stated,  that 
people  who  are  not  educated  to  a  credit  currency  but  are  educated  to  a 
bond  security  or  Government  guarantee,  would  not  without  every  pre- 
cautionary measure  thrown  about  such  a  currency  have  com])lete  con- 
fidence in  it  and  accept  it  readily.  It  will  have  to  be  introduced 
gradually.  It  is  to  be  remembered,  as  I  stated  on  Thursday,  that  banks 
have  not  been  kept  from  failing  in  this  country  because  of  the  bond 
deposit  security  for  circulation,  but  because  those  in  the  nuinagement 
of  them  had  conducted  them,  on  the  whole,  with  skill;  and,  therefore, 
with  the  same  methods  of  banking  and  the  same  men  in  control,  there 
would  not  be  any  greater  number  of  failures  under  a  different  method 
of  issuing  bank  notes. 

Mr.  Spalding.  Then  you  would  not  consider  it  a  safe  method  for 
general  banking  law  to  go  beyond  the  actual  deposit  security  for  the 
bills  which  were  issued  ? 


282  FINANCIAL    AND    BANKING    SITUATION. 


LIMITED    CIRCULATION    AGAINST    ASSETS. 

Mr.  Eckels.  1  do  not  say  that.  I  say  it  would.  I  should  permit 
that  increase  against  the  credits,  but  I  should  limit  at  the  outset  that 
amount. 

Mr.  Spalding.  That  is  what  I  want  to  know. 

Mr.  Xewlands.  To  what  amount? 

Mr.  P2CKELS.  I  stated  that  I  thought  we  might  safely  try  25  per  cent. 

Mr.  Spalding.  As  I  understand  it,  it  goes  right  to  the  gist  of  most 
of  these  bills,  with  the  exception  of  INIr.  Brosius's  bill,  and  to  give  a 
clear  idea  of  the  banking  bill  it  would  be  this,  that  over  and  above  the 
I>ar  value  of  the  bonds  dependent  upon  the  surplus  of  the  bank,  25  per 
cent  of  said  surplus  of  tlie  bank  miglit  be  issued — not  to  exceed  that! 

Mr.  Eckels.  1  do  not  think  I  would  limit  it  to  25  per  cent  of  the  sur- 
plus— 25  per  cent  of  the  caintal. 

Mr.  Spalding.  And  to  be  a  first  lien  upon  all  the  assets  of  the  bank, 
so  that  before  any  depositors  are  paid  the  bill  holder  is  to  be  taken 
care  of? 

Mr.  Eckels.  That  is  on  the  theory  that  a  note  holder  is  entitled  to 
greater  consideration  than  a  depositor  or  holder  of  a  check.  The  rea- 
son given  for  the  theory  is  that  a  note  holder  is  rather  compelled  to 
accept  a  bank  note,  while  the  action  of  a  depositor  is  a  voluntary  one. 

The  Chairman.  There  is  another  point — that  the  note  holder  is  in 
no  position  in  his  relations  to  business  to  know  whether  a  bank  is  sound 
or  not,  as  compared  witli  the  business  man,  who  is  expected  to  know 
whether  banks  are  sound  or  not.     That  is  a  large  element  in  the  case. 

Mr.  Spalding.  This  I  believe  to  be  your  position :  If  a  $100,000 
bank  deposits  sufficient  bonds  it  might  issue  §100,000  in  bank  currency, 
and  then  it  could,  at  discretion,  issue  $25,000  more,  and  the  $25,000 
would  be  guaranteed  by  the  entire  assets  of  the  bank,  and  the  $100,000 
which  had  been  issued  prior  to  that  would  be  guaranteed  by  the  bonds 
of  the  United  States? 

Mr.  Eckels.  I  think  that  is  perfectly  feasible. 

Mr.  Johnson.  I  only  desire  to  submit  an  observation,  and  that  is 
this:  Under  the  present  banking  system  the  first  lien  of  the  note  holder 
upon  the  assets  is  not  looked  upon  with  any  dread  by  the  depositor,  as 
the  bonds  are  sufficient  to  pay  the  notes,  but  under  a  system  of  bank- 
ing upon  assets  alone,  if  the  first  lien  upon  these  assets  were  given  the 
note  holder,  the  depositor  would  feel  that  he  had  less  chance  for  pay- 
ment in  the  event  of  a  failure,  because  in  that  event  the  note  holder 
would  exhaust  his  assets  for  the  payment  of  his  debt. 

Mr.  Eckels.  That  is  undoubtedly  so,  and  that  is  the  very  reason 
why  nothing  distinctively  radical  can  be  entered  ui)on  at  the  outset. 

Mr.  Johnson.  1  am  quite  sure,  from  communications  1  have  received 
from  various  sourcies  on  this  subject,  that  a  great  many  people  louk 
with  disa])probati()n  upon  bank  assets  as  a  first  lien  for  note  holders 
without  a  bond  security,  for  the  reason  that  they  think  it  would  cause 
great  loss  to  the  depositors.  I  think  your  suggestion  that  there  be  a 
limited  amount  of  banking  on  assets  is  very  much  to  the  point  in  this 
connection. 

Mr.  Eckels.  Then,  of  course,  such  notes  would  have  to  be  converti- 
ble in  gold  on  demand,  and  if  the  bank  failed  to  convert  its  notes  in 
gold  on  demand  it  should  be  considered  to  have  committed  an  act  of 
insolvency  and  the  bank  assets  taken  into  possession  for  the  purpose 
of  first  i)aying  off'  the  note  holders  and  then  of  paying  off"  the  creditors 
not  note  holders. 


FINANCIAL    AND    BANKING    SITUATION.  283 

Mr.  Fowler.  You  have  said  that  you  thought  at  the  vstart  they 
might  be  allowed  25  per  cent,  but  as  I  understand  you  it  is  your  opinion 
that  as  people  beconu?  accustomed  to  issuing  credit  currency  and  redeem- 
ing it  in  gold  they  might  ultimately  issue  whatever  the  demands  of 
business  required,  to  the  amount  of  tbeir  capital  and  suri^lus, possibly? 

Mr.  Eckels.  Yes. 

Mr.  Johnson.  Your  idea  is  that  when  i)eople  grow  accustomed  to 
this  system  and  have  confidence  in  it,  it  can  then  be  extended? 

Mr.  Eckels.  When  people  lind  out  that  they  can  take  these  bank 
notes  and  go  to  a  bank  or  a  redemption  agency  and  get  gold,  the  sys- 
tem is  established  and  given  with  entire  confidence.  It  will  then  be 
seen  that  instead  of  wishing  to  carry  gold  the  note  holders  prefer  to 
carry  tlie  promise  to  pay  in  gold  issued  by  the  banks  in  the  form  of 
currency.  It  is  just  exactly  as  if  I  should  go  to  a  man  and  borrow 
$100,000.  When  it  came  time  for  payment,  if  he  knew  1  had  the 
money  he  would  not  be  particularly  anxious  to  have  it  paid  back  if  it 
was  not  needed  by  him  to  buy  something  more  desired  than  my  note. 
The  same  rule  would  prevail  with  holders  of  bank  notes.  If  they 
found  whenever  tliey  went  to  a  bank  they  could  get  gold  of  the  bank 
for  the  bank's  promises  to  pay  which  they  held  they  would  prefer  the 
convenience  of  the  paper  i^romise  to  pay  to  the  piece  of  metal  for 
which  they  could  exchange  it.  Back  of  it  all  is  the  maintenance  of 
the  credit  of  the  issuing  bank  by  its  ability  to  convert  into  gold  its 
promises  to  pay  whenever  these  promises  to  pay  are  presented  for 
redemption. 

Mr.  Spaldiko,  There  is  one  idea  I  want  to  clear  up  in  my  mind  and 
possibly  the  minds  of  some  of  the  other  members  of  the  committee. 
Take,  for  instance,  a  bank  with  a  capital  of  $50,000.  Say  that  bank 
can  issue  currency  to  25  per  cent  of  its  capital.  Now,  if  it  was  desired 
by  the  board  of  directors,  they  might  issue  $12,500  on  the  capital  stock 
of  the  bank  without  purchasing  any  bonds  under  that  25  per  cent 
arrangement,  which  would  prevent  such  a  demand  for  bonds  that  might 
be  called  upon  to  enhance  their  value  way  above  a  point  where  it  would 
be  profitable  to  issue  on  them,  and  in  this  way  it  would  be  left  entirely 
to  the  discretion  of  the  banks,  would  it  not? 

VALUE    OF    BONDS    INCREASED. 

Mr.  Eckels.  There  is,  however,  one  point  which  is  worth  considering 
in  connection  with  the  issuance  of  currency  to  the  par  value  of  bonds. 
Unless  it  is  checked  some  other  way,  such  increased  circulation  is  liable 
to  increase  the  market  value  of  the  bonds  and  to  that  extentdecrease  the 
profit  upon  the  circulation,  and  the  same  difficulty  which  is  now  apparent 
may  have  to  be  confronted.  It  might  be  regulated  by  a  counterbalance 
in  the  shape  of  a  certain  amount  of  credit  currency. 

Mr.  Cox.  If  you  issue  to  the  par  value  of  the  bonds  will  not  it  neces- 
sarily increase  the  value  of  the  bonds? 

Mr.  Eckels.  I  think  that  it  would  tend  to.  Like  any  other  instru- 
ment the  greater  the  results  to  be  obtained  from  it  the  more  valuable 
would  it  become  in  the  market. 

Mr.  Cox.  As  the  value  of  the  bonds  increases,  the  tendency  is  to 
refuse  to  take  out  circulation  ? 

Mr.  Eckels.  Yes;  under  existing  law.  But  despite  the  fact  that  the 
increased  amount  granted  would  increase  somewhat  the  value  of  tlie 
bond,  my  opinion  is  that  it  would  not  increase  it  to  the  extent  it  would 
increase  the  profit  on  the  circulation.     The  profit,  though,  on  circulation 


284  FINANCIAL    AND    BANKING    SITUATION. 

"svould  not  be  brought  up  as  largely  as  may  be  expected  without 
an  increase  in  the  value  of  the  bond  unless  there  is  permitted  a  certain 
amount  of  credit  currency  to  be  issued  after  a  certain  amount  of  bond 
or  guaranteed  currency  had  been  issued. 

The  Chairman.  If  you  desire  to  add  anything  in  a  general  way, 
according  to  the  suggestion  of  Mr.  Hendrick,  before  we  proceed  to  the 
bills,  I  hope  you  will  do  so. 

BANK   RESERVES. 

Mr,  Eckels.  I  would  like,  before  the  committee  takes  up  the  bills 
specifically,  to  be  permitted,  for  the  purpose  of  eidarging  and  possibly 
clearing  up  a  Httle,  to  recur  to  a  subject  Avhich  was  untiuished  when  I 
left  onTliursday.  1  wish  to  recur  to  the  general  subject  of  reserves 
which  Mr.  Newlands  suggested  in  the  various  questions  whicli  ho  asked. 

The  tenor  of  his  questions  Avas  to  the  eftect  that  an  issue  by  the  banks 
of  all  the  credit  currency  redeemable  in  gold  would  find  this  country  in 
a  position  of  having  its  banks  undertake  to  carry  a  very  large  amount 
of  bank  issues  without  the  requisite  gold  reserve.  He  further  sug- 
gested that  in  addition  to  the  gold  reserve  which  it  would  be  necessary 
to  maintain  against  the  notes,  the  necessary  amount  of  gold  reserve 
would  have  to  be  held  against  bank  deposits.  He  reasoned  from  the 
amount  of  bank  deposits  and  the  estimate  of  the  amount  of  bank-note 
currency  which  the  banks  would  be  compelled  to  assume,  this  country, 
according  to  the  statement  of  the  Director  of  the  Mint  and  according, 
to  my  statement  as  to  the  amount  of  tlie  gold  there  was  in  the  country, 
would  find  itself  without  what  he  estimated  to  be  necessary  and  what 
he  stated  1  admitted  to  be  necessary.  It  would  find  it  had  not  the 
amount  of  gold  which  it  ought  to  have  for  those  purposes. 

estimating  amount  of  reserve  needed. 

There  are  some  elements  which  ought  to  be  considered  in  connection 
with  this  question.  One  of  the  elements  is  tliat  you  can  not  estimate 
what  amount  of  gold  is  necessary  for  the  puri)oses  that  he  suggested 
as  a  safe  reserve  by  the  amount  of  gold  which  seems  to  be  carried  in 
the  countries  which  have  not  a  highly  developed  banking  system.  For 
instance,  you  can  not  estimate  how  much  gold  is  needed  in  tlie  United 
States  by  the  amount  of  metallic  reserve  which  is  considered  to  be 
essential  in  France  or  in  Germany,  for  the  reason  that  in  those  countries 
the  people  are  not  educated  to  the  point  of  using  checks  and  credit 
instruments  in  the  payment  of  obligations.  Tlie  fact  is  that  the  people 
least  advanced  in  business  use  the  greatest  amount  of  ])re('ious  metals 
in  making  transfers  of  property,  and  that  in  the  higiicst  develoi)ed 
business  countries  the  least  metallic  money  passes  from  hand  to  hand 
in  bringing  about  such  transfers  of  property.  Thus,  for  instance, 
England,  which,  1  sui)pose,  carries  on  tlie  greatest  transa<'tions  of  any 
country  in  the  world,  employs  the  least  amount  of  gold  with  whi(!h  to 
so  do. 

Because  of  our  development  in  the  lines  mentioned,  in  this  country 
it  would  be  found  that  there  would  be  less  gold  required  to  hold  as 
bank  reserves  against  deposits  and  for  the  purpose  of  note  redemptions 
than  in  any  of  the  continental  countries  of  Europe,  and  as  little,  in 
proportion  to  the  amount  of  business,  as  is  required  in  England. 


FINANCIAL    AND    BANKING    SITUATION.  285 


NO   DEMAND   FOK   METALLIC   3IONEY. 

It  could  not  be  estimated  that  in  this  country  it  would  be  necessary 
to  carry  tlie  same  amount  of  <;old  reserve  against  bank  notes  as  is 
essential  to  carry  against  bank  deposits,  for  the  reason  that  people  do 
not  want  to  carry  about  metallic  money.  An  illustration  of  this  is 
shown  in  the  fact  that  the  silver  dollars  themselves  can  not  be  gotten 
into  circulation,  because  nobody  wants  to  carry  a  silver  dollar  if  he  can 
get  a  paper  representative  of  it.  The  amount  of  gold  reserve  required 
as  against  the  bank  notes  issued  would  be  found  to  be  comparatively  a 
very  small  per  cent.  As  an  example,  take  the  national-bank  notes 
to-day.  They  are  sustained  without  any  difficulty  at  all  by  the  deposit 
in  the  Treasury  of  a  5  per  cent  redemption  fund  of  lawful  money, 
and  certainly  there  could  not  be  any  greater  amount  of  gold  required 
as  against  the  new  notes  to  be  issued. 

Mr.  Hill.  Without  the  greenbacks! 

Mr.  Eckels.  Yes,  if  banks  were  properly  conducted,  if  they  main- 
tained their  credit;  because  the  whole  thing  turns  upon  the  credit 
which  the  bank  would  maintain. 

The  Chairman.  In  other  words,  it  would  be  discovered  by  actual 
practice 

Mr.  Fowler.  That  is  the  experience  practically  in  Scotland  ? 

Mr.  Eckels.  Yes;  in  Scotland;  and  it  is  the  experience  practically 
in  England,  because,  as  I  have  said,  in  proportion  to  the  amount  of 
business  done  the  percentage  of  gold  used  in  England  is  comparatively 
nothing. 

DECREASING   USE    OF    METALLIC   MONEY. 

As  the  banks  improve  the  instruments  of  credit  and  exchange  there 
will  be  a  corresponding  decrease  in  the  use  of  metallic  money.  It  will 
come  about  that  the  only  thing  metallic  money  will  be  used  for  will  be 
as  a  precautionary  measure,  as  reserves  in  a  greater  or  less  amount 
against  bank  deposits,  as  a  small  reserve  against  bank-note  issues,  and 
to  settle  international  balances.  As  there  is  developed  in  communities 
or  sections  which  can  maintain  them  systems  of  clearing  houses,  the 
balances  to  be  settled  in  gold  will  be  still  further  reduced  in  amount, 
because  with  a  properly  constituted  clearing-house  system  either  cities 
or  communities  will  from  day  to  day  leave  only  a  very  small  balance  to 
be  settled  between  the  members  of  it  in  actual  money. 

Mr.  Brosius.  May  I  interrupt  you  with  a  questisn  on  that  point? 
Do  I  understand  you  to  convey  the  idea  that  the  amount  of  redemp- 
tion in  a  general  way  will  depend  largely  upon  the  credit  or  x^aper 
money  of  the  country"? 

Mr.  Eckels.  The  current  redemption. 

Mr.  Brosius.  Do  you  mean  to  distinguish  between  current  and  final 
redemption  when  you  say  after  the  establishment  of  the  credit  money, 
in  case  that  event  should  come  to  pass,  there  would  not  be  any  more 
gold  required  for  redemption  than  there  is  now  under  the  present 
system  of  redemption  1 

ULTIMATE   REDEMPTION   A  MATTER    OF   FANCY. 

Mr.  Eckels.  Yes,  for  the  reason  that  about  all  that  is  to  be  esti- 
mated on  in  the  matter  of  promises  to  pay  on  the  part  of  banks  is 
current  redemption,  because  what  is  called  ultimate  redemption  is 


286  FINANCIAL    AND    BANKING    SITUATION. 

largely  a  matter  of  faiicj'.  Nobody  wants  ultimate  redemption  if  he 
can  have  current  redemption,  except  the  man  who  wants  to  hoard 
money. 

Mr.  Brosius.  You  were  speaking  of  current  redemption  when  you 
made  the  statement? 

Mr.  Eckels.  Yes. 

'Sir.  Brosius.  My  inquiry  is,  and  I  would  like  to  know  whether  or 
not  1  entirely  com])reliend  you,  whether  the  amount  of  current  redemp- 
tion depends  largely  on  the  general  credit  of  the  paper  money,  paper 
currency,  and  if,  in  the  i)ublic  belief,  all  the  paper  currency  and  bank 
notes  are  equal,  the  current  redemption  would  be  very  limited? 

Mr.  Eckels.  Yery  limited,  and  then 

3Ir.  Brosius.  And  the  necessity  for  that  would  be  very  limited  also? 

Mr.  Eckels.  Yes;  that  is,  as  I  say,  as  your  bank  system  improves  it 
makes  every  dollar  an  efficient  dollar,  and  instead  of  bearing  a  single 
transaction  it  will  bear  a  great  many. 

Mr.  SpaldinCt.  Would  that  change  conditions  in  regard  to  the 
demand  for  gold  that  has  been  upon  the  country  for  the  last  four  or 
five  years?  I  am  speaking  now  of  the  actual  demand  for  gold  to  go 
abroad. 

GOLD   HOARIJED. 

Mr.  Eckels.  I  do  not  think  it  would.  The  great  difficulty  which 
has  caused  the  demand  for  gold  has  been  because  of  the  fear  that  the 
United  States  would  not  maintain  its  gold  payments  and  a  large  part 
of  the  gold  that  has  been  withdrawn  has  not  gone  out  of  the  country 
but  has  been  hoarded. 

]Mr.  SPALDiNfi.  That  could  not  have  been  in  regard  to  Austria;  they 
came  here  and  bought  it. 

GOLD   MERELY   A   COMMODITY. 

Mr.  Eckels.  And  that  is  what  everyone  does  who  requires  gold. 
Gold  or  any  other  form  of  money  is  simply  a  commodity,  and  if  a  man 
wants  it  he  has  to  go  and  buy  it.  lie  either  exchanges  labor  or  the 
product  of  labor  for  it.  If  this  country  needs  $100,000,000  of  gold 
to  meet  the  business  demands  of  the  country,  the  banks  in  this  country 
will  buy  that  gold.  If  this  country  does  not  need  8100,000,000  of  gold 
and  some  other  country  needs  it,  that  other  country  will  buy  it  from 
us.  It  will  be  found  that  if  these  needs  are  permitted  to  be  regulated 
by  business  agencies,  and  not  undertaken  to  be  entirely  directed  by 
statutory  law,  the  largest  portion  of  the  monetary  difficulties  of  the 
country  will  be  solved. 

The  Chairman.  Eight  here  let  me  give  you  a  few  figures  which  will 
help  us  all.  In  the  last  sixteen  years  there  were  only  three  years, 
1S89,  1801,  and  ISO.},  tiiat  our  exports  of  gold  exceeded  our  imports 
and  production,  and  we  accumulated  in  those  sixteen  years,  that  is  to 
say,  our  imports  and  ])r()du(;tions  over  exports,  $020, 271,010.  We 
exported  $102,575,144,  making  a  net  increase  of  gold  in  those  years 
of  $526,698,800,  and  of  the  products  and  imports  it  is  estimated  that 
$229,672,150  were  used  in  the  arts. 

Mr.  Newlands.  I  would  like  to  put  some  inquiries  to  Mr.  I^ckels 
with  reference  to  the  statement  as  to  the  reserve,  but  the  question 
comes  up  as  to  the  orderly  course  of  proceeding. 

Mr.  Eckels.  If  1  am  to  be  consulted  I  would  prefer  to  have  the 
inquiry  take  Just  as  wide  ai  range  as  i)ossible.  Whatever  knowledge 
can  be  obtained  on  the  subject,  the  committee  ought  to  have  the  benefit 


FINANCIAL    AND    BANKING    SITUATION.  287 

of  it.  1  do  not  know  how  much  inrorination  I  can  give  on  the  subject, 
but  if  any  I  shall  be  glad  to  give  it. 

The  Chaieman.  I  think  we  could  cover  a  broader  field  in  much  less 
time  if  we  ask  the  questions  on  the  bills  we  have  before  us  and  get  the 
views  of  the  Comptroller  on  them:  but  Mr.  Newlands  has  the  tloor. 

Mr.  Newlandr.  I  was  going  to  say  that  when  I  api)eared  here  at 
the  meeting  last  Thursday  it  was  about  12  o'clock  and  1  believe  the  pro- 
ceedings commenced  at  half  past  10.  I  found  Mr.  Eckels  was  then  under- 
going cross-examination  from  different  members  of  the  committee  and 
I  supposed  that  he  had  finished  his  general  statement  and  it  was  in 
order  then  for  any  member  of  the  committee  to  question  him.  Objec- 
tion was  made  to  my  line  of  inquiry,  and  a  misapprehension  arose 
between  Mr.  Hill  and  myself.  I  thought  Mr.  Hill  was  endeavoring  to 
check  that  line  of  investigation  or  cross-examination,  which  I  thought 
entirely  relevant  and  pertinent,  and  which  I  now  understand  he  thinks 
was  entirely  relevant  and  pertinent,  and  which  certainly  Mr.  Eckels 
thought  was  relevant  and  pertinent,  whereas  his  real  purpose,  as  I 
understand  it,  was  to  bring  the  committee  down  to  an  orderly  method 
of  proceeding  and  to  first  exhaust  Mr.  Eckles  n\)on  the  general  state- 
ment regarding  these  bills  and  then  to  have  an  examination  by  members 
of  the  committee.  I  do  not  want  to  trespass  too  much  upon  the  time  of 
the  committee,  but  there  are  some  important  matters  on  which  I  would 
like  to  question  Mr.  Eckels  in  reference  to  this  general  subject,  and  the 
question  is.  When  shall  I  do  so;  shall  I  go  ahead  now,  Mr.  Chairman! 

The  Chairman.  Certainly,  if  that  is  the  disposition  of  the  com- 
mittee. 

Mr.  Newlands.  If  you  wish  Mr.  Eckels  to  go  on  with  the  inquiry 
regarding  the  bills  I  will  postpone  the  examination  until  later  on. 

The  Chairman.  ]\Iy  Judgment  is  we  should  go  along  wholly  on  the 
lines  of  the  bills,  and  then  take  the  other  matters  up  subsequently;  but 
Mr.  Newlands  has  the  floor. 

Mr.  Newlands.  Very  well.  Mr.  Comptroller,  you  think  that  as  yet 
there  is  no  country  in  the  world  which  has  reached  perfection  in  the 
use  of  credit  facilities'? 

Mr.  Eckels.  Xo,  I  think  there  is  an  evolution  going  on  in  that 
respect,  Just  as  in  the  matter  of  transportation. 

Mr.  Newlands.  The  advance  of  civilization  will  still  further  utilize 
credits  and  bring  about  a  lesser  use  of  metallic  money? 

Mr.  Eckels.  Yes. 

credit   FACILITIES   IN   VARIOUS   COUNTRIES. 

Mr.  Xewlands.  ]S"ow,  what  country,  in  your  opinion,  has  reached  the 
highest  perfection  in  the  use  of  credit  facilities? 

Mr.  Eckels.  Well,  1  think  the  English  people  have. 

Mr.  IsTewlands.  You  do  not  think  the  French  or  Germans  have? 

Mr.  Eckels.  No;  not  as  high  as  the  English. 

Mr.  jSTewlands.  What  country  next  to  England,  in  your  Judgment? 

Mr.  Eckels.  I  should  say  the  United  States. 

Mr.  Newlands.  So,  in  this  advanced  condition  of  the  use  of  credit 
facilities,  England  stands  first  and  America  next? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  What  country  would  you  put  after  America? 

Mr.  Eckels.  I  do  not  know  as  between  Germany  and  France. 

The  Chairman.  In  speaking  of  England,  do  you  refer  to  the  United 
Kingdom  I 

Mr  Eckels.  I  mean  Great  Britain. 


288  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Xewlands.  I  understood  you  to  meau  that. 

Mr.  Eckels.  I  spoke  of  England  as  being'  Great  Britain. 

Mr.  XE^YLANDS.  You  say  in  this  couritry,  as  to  the  reserve  for  the 
security  of  a  bank  issue,  the  issue  of  bank  currency  need  not  be  as  large 
as  the  reserve  for  deposits  ? 

Mr.  Eckels.  Yes. 

Mr.  Kewlands.  And  you  understand  the  5  per  cent  redemption 
fund  in  the  case  of  the  national-bank  notes  has  been  ample? 

Mr.  Eckels.  To  furnish  current  redemption, 

Mr.  oSTewlands.  Is  it  not  a  fact  that  the  national-bank  notes  can  be 
redeemed  by  the  banks  in  any  lawful  money '! 

Mr.  Eckels.  Yes. 

Mr.  jSTewlands.  That  includes  greenbacks? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  So  that  in  addition  to  the  5  per  cent  redemption 
fund  the  national  banks  have  $346,000,000  of  greenbacks  in  the  country 
to  draw  upon  for  redemption,  have  they  not  ? 

Mr.  Eckels.  A  part  of  that;  of  course  they  are  compelled  to  keep 
this  redemption  fund  in  lawful  money  with  the  Treasury.  That  is  the 
only  fund  which  they  have  for  current  redemption. 

PLACE  OF  CURRENT  REDEMPTION. 

Mr.  Kewlands.  That  is  the  only  fund  they  have,  but  they  can 
redeem  at  the  bank  counters  in  currency? 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  Can  you  give  any  information  as  to  how  much! 

Mr.  Eckels.  They  do  not  as  a  matter  of  fact  redeem  at  the  bank 
counter.     It  is  done  here  at  Washington. 

Mr.  Xewlands.  But  they  can  I 

Mr.  Eckels.  They  can,  but  they  do  not. 

Mr.  jSTewlands,  As  I  understand  you,  in  this  new  system  greenbacks 
are  to  be  eliminated  from  our  circulation  ? 

Mr.  Eckels.  Y'es;  because  it  is  rather  an  absurdity  to  say  you  redeem 
something  with  a  redemption  that  has  to  be  redeemed  itself. 

Mr.  Newlands.  That  is  the  case  now? 

Mr.  Eckels.  It  is  like  undertaking  to  have  two  redemption  moneys, 
when,  as  a  matter  of  fact,  one  redemption  money  is  redeemable  in  some- 
thing else. 

RUSSIA   AND    THE    GOLD    STANDARD. 

Mr.  Xewlands.  The  report  of  the  Director  of  the  Mint,  as  I  showed 
the  other  day,  shows  that  England,  France,  and  Germany  have  two 
billions  out  of  the  four  billions  of  the  gold  in  the  world.  Y^ou  know 
that  liussia  is  endeavoring  to  reach  the  goki  standard.  What,  in  your 
judgment,  has  ])re vented  Russia  from  reaching  t4ie  gold  standard  and 
being  successful  in  making  gold  redemi)tions? 

Mr.  Eckels.  The  general  condition  of  tlie  countiy  and  the  charac- 
teristics of  the  peojde,  the  enormous  expenditures  which  the  (lOvern- 
ment  has  been  compelled  to  make  to  maintain  itself  at  home,  and  its 
enormous  rates  of  taxation  upon  the  people.  It  is  largely  because  of 
such  adverse  conditions. 

Mr.  Xeavlands.  Js  the  credit  of  Ilussia  good  in  the  maikets  of  the 
world? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Do  you  know  how  much  gold  she  has  accunuilated? 


FINANCIAL    AND    BANKING    SITUATION.  289 

Mr.  Eckels.  No,  1  do  not;  but  it  is  a  very  considerable  sum. 

Mr.  Newlanu.s.  Ls  that  ^old  maintained  in  circulation  in  Kussia! 

Mr.  Eckels.  I  think  part  of  it  is  and  part  of  it  is  reserved.  There 
are  certain  of  their  currency  credit  instruuients  redeemed. 

Mr,  Newlands.  Is  it  not  almost  all  of  it  in  the  treasury  of  Russia? 

Mr.  Eckels.  Yes;  a  very  large  portion  of  it,  and  it  is  a  great  waste 
to  keep  it  there. 

Mr.  iSTEWLANDS.  The  Mint  IJirector's  report  shows  that  the  amount 
of  gold  in  Russia  was  $480,000,()()().  Now,  will  Kussia  be  obliged  to  get 
more  gold  in  order  to  make  gold  redemjjtions  and  to  maintain  tlie  par- 
ity of  their  uncovered  i)aper  with  gold? 

Mr.  Eckels.  I  should  take  it  with  the  general  characteristics  of  the 
vast  mass  of  the  Russian  i)eople  that  they  would  require  a  larger  per- 
centage of  gold  for  current  redemption  of  their  notes  there  than  with 
a  people  such  as  the  people  we  have  who  are  used  to  banks  of  deposit 
and  discount. 

Mr.  I^^E^A  LANDS.  Russia  has  $539,000,000  of  uncovered  paper  money 
and  only  about  -$48,000,000  of  silver  and  $480,000,000  of  gold.  Now,  is 
it  your  oi)iiiion  that  in  order  to  successfully  make  gold  redemption 
and  to  maintain  the  ])arity  or  restore  the  parity  between  its  uncoxered 
paper  and  gold,  it  would  be  necessary  that  they  should  have  a  larger 
gold  reserve  than  now? 

Mr.  Eckels.  I  would  not  undertake  to  answer  the  question,  because 
1  do  not  know  the  local  conditions  and  methods  and  machinery  of 
exchange  in  Russia,  but  1  do  say  upon  general  principles  that  it  would 
require  a  larger  percentage  in  Russia  than  it  would  in  the  United 
States.  Notwithstanding  this,  the  fact  is  that  if  it  required  a  larger 
percentage,  Russia,  like  the  United  States,  could  get  the  necessary  gold 
by  paying  for  it,  and  if  upon  the  banks  Avas  placed  the  necessity  of 
redeeming  this  uncovered  paper,  tlie  banks  are  equipped  with  the 
machinery  for  getting  the  gold,  because  they  have  the  things  to  sell  in 
order  to  buy  it. 

Mr.  Xeavlands.  Do  you  know  whether  this  uncovered  paper  money 
of  Russia  is  Government  or  bank  paper? 

Mr.  Eckels.  As  1  remember,  some  of  it  is  Goveryment  and  some  of 
it  is  bank  paper. 

Mr.  Newlands.  Do  you  know  the  proportion  ? 

Mr.  Eckels.  No;  I  do  not. 

Mr.  Newlands.  Do  you  know  what  relation  that  uncovered  paper 
money  bears  to  the  gold,  how  much  discount  it  has  ? 

Mr.  Eckels.  No;  but  as  stated  on  Thursday,  there  is  a  considerable 
discount  on  all  of  them. 

Mr.  Newlands.  Somewhere  near  50  i)er  cent,  is  it  not? 

Mr.  Eckels.  Yes. 

Mr.  Newlands,  I  presume  you  admit,  then,  that  if  Russia  is  not  able 
to  keep  its  uncovered  i)aper  money  at  par  with  gold,  more  gold  is 
required  in  that  country,  unless  they  reform  their  methods'? 

Mr.  Eckels.  I  think  undoubtedly  more  gold  might  be  required  in 
Russia  under  its  present  conditions,  but  at  the  same  time  I  think  that 
if  it  was  reijuired  there  it  would  not  be  required  souiewhere  else  and 
the  surplus  somewhere  else  would  go  there  if  proper  inducements  were 
offered. 

at:stria  and  the  cjold  standard. 

Mr.  Newlands.  Now  take  Austria.     Austria,  according  to  the  Mint 
Director's  report,  has  $140,000,000  in  gold,  $120,000,000  in  silver,  and 
CUR 19 


290  FINANCIAL    AND    BANKING    SITUATION. 

8204,000,000  of  uncovered  paper  money.  Is  it  or  i.s  it  not  yonr  under- 
standing tliat  Austria  is  not  able  to  maintain  tlie  parity  of  its  paper 
Avitli  gold  ? 

Mr.  Eckels.  I  do  not  think  it  Las  fully  succeeded, but  it  has  started, 
to  bring  tbem  to  a  parity. 

jNIr.  Newlands.  It  is  endeavoring  to  go  upon  the  gold  standard  and 
restore  the  parity  between  its  paper  money  and  gold  ? 

Mv.  Spalding.  Excuse  me,  but  they  are  on  the  gold  standard;  they 
are  not  going  to  tlie  gold  standard. 

Mr.  Eckels.  Austria  has  the  gold  standard  and  is  undertaking  to 
bring  about  parity.  In  connection  with  all  these  questions  based  upon 
the  facts  that  are  obtained  from  the  rei)ort  of  the  Director  of  the  Mint, 
is  to  be  ke])t  in  mind  the  lact  that  if  Eussia,  if  Italj'^,  or  any  other  coun- 
try wants  gold  it  is  going  to  be  able  to  get  it  by  giving  in  exchange 
the  things  which  those  people  who  have  gold  want  more  than  they  want 
gold.  So  that  if  the  ])eople  of  the  United  States  had  here  a  surplus  of 
gold  they  would  sell  that  gold  to  Kussia  or  Italy,  and  our  people  would 
be  better  oft"  for  having  done  so,  because  they  have  received  in  exchange 
for  it  the  things  which  they  want  more  than  they  do  the  gold.  I  do 
not  believe  in  the  theory  that  the  wealth  of  the  country  is  in  the  num- 
ber of  dollars  in  gold  or  silver  which  its  people  have,  but  it  is  to  be 
estimated  in  the  things  which  have  been  or  can  be,  if  necessary, 
exchanged  for  gold. 

Outside  of  the  fact  that  our  Treasury  conditions  are  such  that  busi- 
ness is  embarrassed  by  this  going  of  gold  out  of  the  country,  there 
liave  not  been  any  adverse  conditions  in  the  way  of  wealth  holdings  of 
the  people  by  it,  except  as  they  have  lost  through  the  disturbance  in 
business  credit  which  it  has  created.  In  each  instance  they  have 
exchanged  the  gold  for  something  which  they  needed  more,  and  added 
more  to  their  welfare,  instead  of  lessening  their  wealth  by  the  gold 
which  has  gone  out.  The  only  difficulty  is  that  it  has  been  taken  from 
the  Government  at  a  time  when  the  Government  had  demand  obliga- 
tions out  which  our  own  and  other  people  were  holding,  and  which  they 
feared  were  not  going  to  be  redeemed,  and  therefore  commenced  to 
hoard  and  contract,  and  the  credit  of  the  Government  being  thus 
impaired,  it  affected  the  credit  of  every  business  enterprise  which  was 
more  or  less  dependent  upon  the  credit  of  the  Government. 

Mr,  Newlands.  I  understand  your  view  is  that  more  gold  is  required 
in  the  monetary  system  of  every  country,  and  that  involves  also  the 
admission  that  a  proper  amount  of  gold  is  required  in  every  country. 

Mr.  Eckels.  Yes. 

Mr.  Xewlands.  In  your  statement,  as  I  Tinderstand  it,  some  coun- 
tries may  have  a  surplus  and  others  have  a  scarcity,  and  those  that 
Lave  a  scarcity  can  always  get  the  gold  from  the  countries  that  have 
a  surplus. 

Mr.  Eckels.  If  they  pay  enough. 

Mr.  Newlatnds.  I  am  indicating  now  the  countries  which  have  a 
scarcity  of  gold.  We  have  been  tlirough  Kussia,  and  we  are  now  at 
Austria-Hungary,  and  I  assume  as  to  the  reiiuirement  of  different 
countries  for  gold  that  they  have  enough  when  they  are  able  to  keep 
their  uncovered  ]>aper  money  at  x>ivr  with  gold.  Is  that  a  correct 
assum])tionf 

Mr.  EcKia.s.  Yes;  but  they  always  get  enough  gold  if  they  have 
something  to  exchange  that  peo])le  who  have  gold  would  rather  have 
than  the  gold. 

The  CiiAiiiMAN.  Does  it  not  involve  also  a  sOund  financial  system? 


FINANCIAL    AND    BANKING    SITUATION.  291 

Mr.  Eckels.  Those  are  all  contributing'  (urcumstances  as  well  as  the 
business  habits  of  the  peoi)le. 

Mr.  Wai-keu  (Mr.  Brosius  in  the  (;hair).  I  move  that  when  the  com- 
mittee adjourns,  as  I  am  obliged  to  be  away  now,  that  it  adjourn  to 
meet  to-morrow  and  continue  this  hearing,  and  that  at  to-morrow's  ses- 
sion Mr.  Eckels's  mind  be  directed  to  the  bills  submitted  to  him. 

The  motion  was  agreed  to. 

Mr.  Calderhlal).  Is  it  the  purpose  of  your  inciuiry  to  sh<»w  there  is 
not  gold  enough  available  for  banking  purposes? 

Mr.  Xewlands.  I  propose  to  (juestion  Mr.  Eckels  as  to  the  existing 
stock  of  gold.  I  can  not  tell  whether  Mr.  Eckels  will  develop  the  fact 
whether  there  is  gold  enough  in  the  world  or  not. 

Mr.  Calderhead.  Is  that  what  you  are  trying  to  ascertain? 

Mr.  Xewlands.  I  am  trying  to  ascertain  now  whether  there  is  enough 
gold  in  the  world  for  us  to  do  business;  whether  we  can  get  it,  and 
where  we  can  get  it. 

Mr.  Calderhead.  Is  not  the  question  before  us,  whether  we  can 
establish  a  banking  system  or  not,  without  reference 

Mr.  Newlands.  We  already  developed  the  other  day  that  $950,000,000 
of  gold  will  be  required  in  this  country  as  a  practical  reserve. 

Mr.  Fowler.  Did  Mr.  Eckels  say  so? 
;     Mr.  Eckels.  I  beg  your  pardon;  what  was  that? 

Mr.  Newlands.  I  understood  you  to  say  the  other  day  you  regarded 
18  per  cent  as  a  fair  average  reserve  for  banks  to  hold  as  against 
deposits,  and  that  that  should  be'  held  in  gold,  and  you  stated  that 
the  amount  of  deposits  in  the  country  you  estimated  to  be  about 
85,000,000,000,  and  18  per  cent  of  that  would  be  $900,000,000,  and  I 
understood  you  to  estimate  that  if  the  credit  currency  of  the  country 
were  issued  by  the  banks  instead  of  by  the  (xoverument  the  total 
issue  Avould  approximate  $1,000,000,000,  taking  the  place  of  silver 
certiticates.  Treasury  notes,  greenbacks,  etc.,  including  the  present 
national  bank  notes,  and  a  safe  gold  reserve  for  redem])tion  purposes 
as  against  this  $1,000,000,000  would  be  5  per  cent,  or  $50,000,000.  That 
would  make,  then,  the  total  reserve  of  gold  in  this  country  $950,000,000, 
would  it  not  ?  Now,  then,  I  am  simply  pursuing  the  inquiry  as  to  where 
we  are  to  get  that  extra  $250,000,000. 

Mr.  Eckels.  We  can  get  it  in  England;  we  can  get  it  in  France; 
we  can  get  it  in  any  country  which  has  gold  to  sell,  and  there  is  no 
country  but  has  gold  to  sell  if  we  are  willing  to  pay  for  it,  and  there 
has  never  been  a  time  yet,  Mr.  ISewlands,  where  a  country  maintained 
its  credit,  that  it  could  not  obtain  all  the  money  that  it  wanted  for  the 
purpose  of  carrying  on  the  business  of  that  people. 

Mr.  Newlands.  Well,  1  admit  that.  Understand  me,  I  do  not  pro- 
pose to  get  into  any  contention  on  that;  I  am  simply  getting  at  the 
facts. 

Mr.  Eckels.  I  understand  that,  perfectly. 

]\rr.  Newlands.  We  will  assume,  now,  that  $950,000,000  is  needed 
and  we  have  only  got  $018,000,000,  according  to  the  statenjeut  of  the 
Director  of  the  Mint,  and  $700,000,000  according  to  your  statement, 
and  at  least  $250,000,000  more  of  gold  will  be  required;  and  you  must 
admit 

Mr.  Eckels.  If  that  amount  was  necessary. 

Mr.  Newlands.  You  must  admit,  if  we  have  not  got  it,  it  must  come 
from  some  other  country? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Now,  I  am  directing  myinquiry  as  to  what  countries 


292  FINANCIAL    AND    BANKING    SITUATION. 

have  a  surplus  aud  what  countries  have  a  scarcity  of  gold — what  coun- 
tries will  re(iuire  more  gold  in  order  to  establish  the  monetary  system 
which  we  have  established  and  are  endeavoring  to  maintain  and 
what  countries  have  a  surplus  of  gold.  Now,  we  have  been  through 
England,  France,  and  Germany  t 

Mr.  Eckels.  IJpon  that  point  you  find  that  whenever  the  occasion 
arises  that  we  want  $1*50,000,000  of  gold  we  find  other  countries  have 
$L*r)0,000,000  of  gold  that  they  do  not  want  as  badly  as  they  want  some- 
thing which  they  have  not  and  which  we  have.  There  may  be  a  time 
when  we  would  have  to  have  as  mucli  as  $1,300,000,000  of  gold,  and  there 
may  be  a  time  Avheu  we  would  be  recjuired  to  have  but  $400,000,000  of 
gold,  or  less.  It  would  all  depend  upon  the  condition  of  business  here, 
the  amount  of  property  to  be  transferred,  the  number  of  transactions  to 
be  carried  on,  and,  most  important  of  all,  the  state  of  credit  maintained 
by  the  institutions  which  are  issuing  these  promises  to  pay,  and  by  the 
state  of  credit  maintained  by  the  borrowers  of  this  country  in  dealing 
with  those  institutions. 

PRESENT    PRODUCTKIN    OF    CtOLD. 

Mr.  Fowler.  In  answer  to  his  question,  where  would  the  United 
States  get  the  gold,  isn't  it  a  fact  that  the  world  is  now  producing  about 
$250,000,000  in  gold  a  year  ?     Isn't  that  the  prospect  of  the  present  year  ? 

Mr.  Eckels.  That  is  the  estimate,  but  if  it  were  not  producing  that 
much  we  could  get  it  if  we  paid  enough  for  it. 

Mr.  IsTewlands.  I  will  get  down  to  the  question  of  production  in  a 
moment. 

Mr.  Johnson.  There  has  been  a  great  impetus  in  the  production  of 
gold  in  the  last  four  or  five  years. 

Mr.  Hill.  Is  it  not  a  matter  of  fact  that  England  to-day  has  only 
between  1  and  2  per  cent  of  gold  reserve  as  against  its  bank  deposits 
and  circulation? 

Mr.  Eckels.  I  do  not  remember  the  per  cent,  but  it  is  the  smallest  of 
any  people. 

iVIr.  Hill.  About  $484,000,000  against  about  $5,000,000,000  of  bank 
dei)osits  and  bank  credits — between  1  and  2  per  cent. 

Mr.  Eckels.  It  is  not  more  than  2  per  cent.  I  know  it  is  a  very 
small  percentage. 

Mr.  Newlands.  That  is  nearly  10  per  cent. 

Mr.  Eckels.  1  think  it  is  about  1  per  cent.  I  said  $5,000,000,000  of 
bank  deiDosits  and  bank  credits  and  a  gold  reserve  of  $484,000,000. 

Mr.  Newlands.  $500,000,000  is  10  per  cent  of  $5,000,000,000. 

Mr.  HiLi,.  That  is  correct. 

Mr.  Newlands.  Let  us  return  to  Austria,  if  you  please.  Do  you 
know  how  nearly  the  uncovered  paper  of  Austria  has  been  brought  to 
a  parity  with  gold? 

Mr.  Eckels.  No;  I  do  not  know  what  the  ])ercentage  of  discount  is. 
I  have  not  examined  those  things  because  1  desired  to  discuss  the 
question  upon  the  principles  involved  and  not  ui>on  mere  technical 
figures. 

Mr.  Newlands.  Could  you  ascertain? 

Mr.  Eckels.  Yes,  1  could  ascertain,  and  will  do  so. 

Mr.  Newlands.  Would  y<m  be  good  enough  to  ascertain  what  the 
value  of  the  Kussian  uncovered  paper  money  is,  and  also  the  Austrian, 
and  the  S])anish,  and  the  Italian,  and  the  Portuguese — as  compared 
with  gold? 


FINANCIAL    AND    BANKING    StfUATION.  293 

Mr.  Eckels.  1  will  obtain  those  figures  from  the  Director  of  the 
Mint. 
Mr.  Spaldinu,  They  are  <[uoted  every  day  in  tlie  papers. 

ITALY    AND    THE    GOLD    STANDARD. 

Mr.  Xewlands.  Now,  Mr.  Eckels,  according  to  the  Director  of  the 
Mint,  Italy  has  $1)8,000,000  in  gold,  $41,000,000  in  silver,  and  $191,000,000 
in  uncovered  paper  money.  Do  you  know  whether  or  not  Italy  is  able 
to  maintain  its  uncovered  pai)er  money  on  a  parity  with  gold? 

Mr.  EoKLEs.  I  think  it  is  not.  I  think  I  answered  that  Thursday— 
that  it  is  not. 

Mr.  Newlands.  Do  you  know  Avhat  the  discount  is? 

Mr.  Eckels.  No. 

Mr.  Newlands.  Assuming  existing  conditions,  would  you  assume 
then  that  Italy  required  more  gold  in  order  to  maintain  the  jiarity"^ 

Mr.  Eckels.  As  I  said  of  Kussia,  I  do  not  know  all  the  domestic 
conditions  there,  but  the  fact  that  they  do  not  would  seem  to  indicate 
that  they  have  not  either  the  methods  which  are  essential,  in  the  way 
of  banking  facilities,  to  make  the  amount  which  they  have  equal  to  the 
demand,  or  else  they  need  more.  As  I  said  before,  those  peoide  who 
have  not  these  facilities  undoubtedly  require  a  larger  amount  to  bring- 
about  the  transfers  of  property  among  themselves  than  those  that  have, 
because  they  do  not,  as  we  do,  transfer  property  by  means  of  instru- 
ments of  credit,  but  they  transfer  their  property  for  that  money  which 
people  handle,  which  in  itself  has  the  amount  of  value  of  the  thing 
which  is  to  be  transferred  for  it. 

At  this  point,  upon  motion  of  Mr.  McCleary,  the  committee,  at  12 
o'clock,  took  a  recess  until  l.oO  p.  ra. 

after  recess. 

The  committee  reassembled  at  1.30  p.  m.,  Mr.  Brosius  in  the  chair. 

The  Chairman.  Mr.  Eckels  has  the  floor. 

Mr.  Newlands.  Shall  I  resume? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  I  believe  that  we  were  on  the  subiect  of  Italy.  I 
observe  by  the  Director's  report  that  Italy  has  $98,000,000  of  gold, 
$41,000,000  of  silver,  and  $191,000,000  of  uncovered  paper  money.  Do 
you  know  whether  or  not  that  is  maintained  at  a  par  with  gold? 

Mr.  Eckels.  No;  the  uncovered  paper  is  considerably  below  the 
gold. 

SOUTH   AMERICAN   STATES   AND   THE   GOLD   STANDARD. 

Mr.  Newlands.  Discussing  the  smaller  nations,  we  come  down  to 
the  Mint  Director's  statement  in  reference  to  the  South  American 
States.  He  states  that  their  stock  of  gold  is  $41,000,000;  that  their 
stock  of  silver  is  $31,000,000,  and  their  uncovered  paper  money  amoubts 
to  $550,000,000. 

L  Mr.  Eckels.  Is  that  for  the  whole  of  the  South  American  Republics? 
f  Mr.  Newlands.  Yes.  Do  yon  know  whether  any  of  that  paper  is 
maintained  at  a  parity  with  gold? 

Mr.  Eckels.  I  think  all  of  it  is,  to  a  greater  or  less  degree,  below  par. 

Mr.  Newlands.  Do  you  know  whether  any  of  the  South  American 
States  liave  recently  gone  to  the  gold  standard? 

Mr.  Eckels.  Yes;  Chile  has  recently  gone  to  the  gold  standard. 

Mr.  Newlands.  Has  Brazil  also? 


294  FINANCIAL    AND    BANKING    SITUATION.      ^ 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Do  you  know  whether  or  not  they  are  able  to  make 
gold  redemption  ? 

Mr.  Eckels.  I  do  not  think  they  have  the  machinery  all  perfected 
for  it  yet  in  an  unlimited  degree;  they  do  it  to  a  certain  extent. 

Mr.  Newlands.  Do  you  think  it  a  wise  thing  for  those  countries  in 
South  America  to  adopt  the  gold  standard? 

Mr.  Eckels.  I  think  it  is  a  wise  thing  for  any  country  to  undertake 
to  put  its  standard  of  value  upon  the  basis  of  the  great  commercial 
nations  of  the  world. 

Mr.  Newlands.  In  order  to  do  that  and  make  gold  redemption  they 
will  require  more  gold,  will  they  not? 

Mr.  Eckels.  For  the  reason  only  that  any  country  that  is  not  in  the 
habit  of  using  banks  and  has  not  banking  facilities  requires  more  gold 
than  other  countries  that  have  those  facilities.  1  may  say  in  a  general 
way,  as  applying  not  only  to  the  question  in  regard  to  the  South 
American  Eepublics.  but  as  applying  to  Italy,  Eussia,  and  the  other 
countries  you  have  mentioned,  that  if  those  countries  had  the  same 
facilities  for  banking  that  the  United  States  has,  they  would  not  pro- 
portionately reipiire  any  more  gold  tlian  the  United  States — that  is,  if 
their  people  were  in  the  habit  of  using  banking  facilities.  The  same 
way  with  the  South  American  Republics;  and  when  I  am  asked  whether 
or  not  I  think  they  would  not  liave  to  increase  their  gold  to  meet  the 
demand  of  the  redemption  of  their  notes,  the  proper  answer  should  be 
that  they  either  would  have  to  increase  their  gold  holdings  or  increase 
their  banking  facilities,  and  have  their  people  use  them.  If  they  could 
increase  their  banking  facilities  and  the  peoi)le  use  the  banks,  then 
undoubtedly  they  would  not  require  more  than  a  nominal,  if  any, 
increase  in  their  gold  holdings. 

That  which  is  to  be  done  in  the  T'nited  States  when  you  come  to  enact 
a  banking  measure  can  not  be  gauged  by  what  is  done  or  is  necessary 
in  Italy,  Russia,  or  the  South  American  Eepublics,  because  in  those 
countries  there  is  a  different  character  of  people,  differently  conduct- 
ing their  banking,  with  different  means  of  carrying  on  commerce,  and 
different  methods  of  doing  things.  And  while  Italy  or  Eussia  or  the 
South  American  Eepublics  might  necessarily  require  a  large  amount  of 
gold  to  accomplish  tlie  same  thing  that  the  United  States  does,  it  does 
not  follow  that  the  United  States  would  require  a  proportionate  increase 
to  do  it.  The  i)eople  of  the  United  States  understand  the  use  of  credit 
instruments  and  those  people  do  not,  and  do  not  emi)loy  them. 

Mr.  Newlands.  Eut  you  would  exi)ect  those  countries  proportion- 
ately to  require  Just  as  much  gold  as  the  United  States? 

Mr.  Eckels,  Yes. 

Mr.  Newlands.  Well,  now,  Italy,  for  instance,  with  30,000,000  peo- 
ple  

Mr.  Eckels.  No;  I  would  not,  unless  you  figure  the  i)roportionate 
number  of  transfers  of  proi)erty  in  Italy  as  com  pared  with  the  number 
of  transfers  of  property  to  be  made  in  tln^  Tnited  States,  because  you 
do  not  estimate  by  population — that  is  the  least  imi)ortant  thing — you 
do  not  estimate  correctly  by  any  other  thing  than  by  the  numbers  of 
transfers  of  i)roperty  which  are  to  be  facilitated  by  the  use  of  a  medium 
of  exchange. 

Mr.  Newlands.  In  other  words,  tlie  volume  of  business. 

Mr.  Eckels.  Yes;  the  volume  of  business. 

Mr.  Newlands.  Vou  think  that  a  country  that  has  a  very  large  vol- 
ume of  business,  very  many  transactions,  will  require  more  gold  as  the 


FINANCIAL    AND    BANKING    SITUATION.  295 

basis  of  its  mouetaiy  system  than  the  one  having-  a  lesser  volume  of 
business. 

Mr.  Eckels.  Unless  there  prevailed  in  that  country  the  transfer  of 
property  through  the  intervention  of  bills  of  exchange,  checks,  and 
credit  devices.     It  would  all  depend  upon  these  outside  circumstances. 

Mr.  Newlands.  Now,  tlie  South  American  States  have  3<;,()(>(>,000 
people  and  only  $4(),(M)0,()()0  of  gold.  We  will  assume  that  they  all 
endeavor  to  go  to  the  gold  standard  and  that  they  have  eciual  banking 
facilities  with  our  own.  Would  they  or  would  thev  not  require  more 
gold? 

Mr.  J'iCKELS.  They  wouhl  not  if  they  had  e(iual  l)aiiking  facilities  with 
us  and  the  people  were  educated  to  the  use  of  banking  facilities.  In 
such  case  they  would  not  require  any  more  gold  proportionately  than 
we  do. 

Mr.  Xewlands.  They  have  |1  per  head  in  gold,  whilst  we  have  in 
this  country  about  $8  per  head. 

Mr.  Eckels.  They  might  have  to  increase  their  gold  holdings,  but  if 
they  did  they  would  be  able  to  obtain  them,  because  there  never  has 
been  a  time  yet 

Mr.  Newlands.  We  have  gone  over  a  number  of  countries  that  have 
a  large  amount  of  uncovered  paper  money  and  small  stocks  of  gold, 
and  we  will  assume,  now,  that  they  have  endeavored  to  go  upon  the  gohl 
standard.     They  will  certainly  require  some  more  gold,  will  they  not? 

Mr.  Eckels.  Or  increased  banking  facilities. 

Mr.  Newlands.  Or  else  they  have  got  to  have  a  perfected  banking 
system. 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Do  you  think  it  possible  in  a  few  years  to  accom- 
plish a  world-wide  perfection  of  the  banking  system? 

Mr.  Eckels.  No,  probably  not. 

Mr.  Newlands.  Then,  the  demand  for  gold  will  precede  the  perfec- 
tion of  the  banking  system,  will  it  not,  in  these  countries'? 

Mr.  Eckels.  Yes;  but  growing  less  instead  of  greater,  becauvse  iu 
eacli  of  these  countries  banking  methods  are  continually  being  improved 
upon,  and  there  is  a  corresponding  lessening  of  the  demand  for  the  use 
of  metallic  money.  There  is,  on  the  other  hand,  a  largely  increased 
yearly  production  of  gold. 

Mr.  Newlands.  But,  as  I  understand  it,  you  regard  a  proper  ajnouut 
of  gold  as  the  basis  of  a  proper  banking  system? 

Mr.  Eckels.  I  do;  for  current  redemption. 

Mr.  Newlands.  Would  it  not  be  possible  for  them  to  perfect  tke 
banking  system  without  obtaining  the  i)roper  amount  of  gold? 

Mr.  Eckels.  I  think  not. 

Mr.  Newlands.  That  would  involve  an  increased  amount,  to  some 
amount,  at  least,  in  all  these  countries  that  have  the  large  amounts  of 
paper  money  at  a  discount. 

Mr.  Eckels.  Undoubtedly  it  would  require  an  increase,  but  the 
increase  iu  production  is  to-day  larger  in  proportion  than  the  increase 
iu  the  demand. 

Mr.  Newlands.  Do  you  think  the  increased  production  of  gold  would 
meet  this  increased  demand? 

Mr.  Eckels.  The  increased  production  on  the  one  hand,  and  it 
would  decrease  the  demand  for  the  use  of  gold  iu  countries  which  are 
improving  their  banking  methods. 

Mr.  Newlands.  Yes.  Now,  what  country  can  you  point  out  to  me 
to-day  that  has  a  surplus  of  gold  ? 


296  FINANCIAL    AND    BANKING    SITUATION. 


SURPLUS   OF    GOLD   IN   SEVERAL   COirNTRIES. 

Mr.  Eckels.  I  tliink  there  is  a  surplus  of  gold  in  I'ugland;  I  think 
there  is  ii  surplus  iu  France;  there  has  been  a  surplus  of  gold  in  the 
Uuited  States,  and  that  is  proven  by  the  i'act  that  our  people  wanted 
something-  more  than  they  wanted  the  gold  and  they  gave  up  the  gold. 
There  may  not  have  been  a  surplus  i'or  the  length  of  a  year  at  a  time, 
but  there  has  been  a  surplus  as  the  varying  conditions  of  business 
have  changed. 

]\Ir.  i*^EWLANDS.  You  think  that  the  surrender  of  gold  from  a  country 
is  purely  a  voluntary  matter  ". 

Mr.  Eckels.  Certainly.  It  is  surrendered  because  the  people  of  the 
country  desire  to  get  something  wliich  they  consider  of  greater  use  to 
them  than  the  gold. 

Mr.  Newlands.  The  United  States  is,  I  believe,  in  the  relation  of 
its  i)eo])le  to  other  countries,  the  greatest  debtor  nation  of  the  world — 
I  believe  it  is  so  regarded,  is  it  not  ? 

Mr.  Eckels.  Yes. 

the   EXPORT    OF    GOLD. 

Mr,  JS"EWLANDS.  When  the  creditor  countries  throw  their  securities 
upon  the  American  market  for  sale  in  gold  and  the  export  of  gold  is 
caused  by  that,  do  you  think  that  the  absorption  of  these  securities 
and  the  export  of  gold  is  a  voluntary  thing  by  the  people  of  the  United 
States,  and  a  pleasurable  thing? 

Mr.  Eckels.  Probably  at  times  it  is  not  a  pleasurable  thing,  and 
there  may  be  immediate  periods  when  it  is  a  detrimental  thing,  but  in 
the  general  average  it  is  a  beneficial  thing. 

Mr.  ]Kewlands.  Then,  the  export  of  this  gold  does  not  necessarily 
indicate  a  desire  on  the  part  of  the  country  to  let  so  much  gold  go  to 
another  country,  does  if? 

]Mr.  Eckels.  Xo;  it  doesn't  necessarily  indicate  that,  but,  on  the 
other  hand,  it  indicates  that  the  people  are  able  to  get  the  gold  to  meet 
these  demands. 

Mr.  Newlands.  It  may  mean  that  thej^  are  compelled  to  paj'  their 
debts — reluctantly "'. 

]Mr.  Eckels.  Well,  undoubtedly  at  times  a  man  pays  his  debts 
reluctantly,  but  even  if  he  does  he  feels  more  comfortable  after  he  has 
paid  theuL  Here  is  the  difficulty  in  the  taking  of  the  gold  from  this 
country:  It  is  taken  direct  from  the  Treasury  of  the  United  States  in 
an  unnatural  way,  instead  of  being  taken  through  the  agency  of  the 
banks,  for  tlie  purposes  of  legitimate  business  in  the  natural  course  of 
business. 

Mr.  Newlands.  Now,  if  there  is  a  surplus  of  gold  in  England,  France, 
and  Germany,  how  do  you  account  for  it  that  when  the  exports  of  gold 
increased  within  the  last  few  months  to  this  country  from  England, 
arising  from  our  wheat  sales,  that  the  Bank  of  England  rate  of  discount, 
which  is  normally  about  1.^  to  2  per  cent,  Avas  raised  to  4  and  5  per  cent? 
Wasn't  its  purpose  to  i)revent  the  export  of  gold  ? 

Mr.  Eckels.  Undoubtedly  it  was,  but  it  did  not  accomplish  the  pur- 
pose, because  there  were  some  things  they  wanted  more  than  they  did 
gold. 

Mr.  Newlands.  The  fact,  then,  of  that  raise  in  the  rate  of  discount 
showed  that  England  felt  it  ha<l  no  surplus  of  gold  and  could  not  spare 
its  gold  ? 

Mr.  Eckels.  No;  1  do  not  think  it  necessarily  meant  that.     1  think 


FINANCIAL    AND    BANKING    SITUATION.  297 

it  showed  that  EnjilaiKl  did  not  want  too  much  to  leave  at  once,  and 
that  it  would  aid  toward  having;-  moie  of  these  thiiiiis  i)a-id  by  sixty  or 
ninety  days'  bills  of  exchan<;o  instead  of  being  paid  direct  by  the  gold, 
during  which  sixty  or  ninety  days  things  could  adjust  themselves,  and 
possibly  within  that  time  tlu^  large  amount  of  agricultural  produce 
which  Avould  be  imported  to  i*]nglaiid  would  be  paid  l)y  a(;orresi)onding 
dennind  for  the  ])roducts  of  the  ICngiish  manufacturers  and  tor  other 
things,  so  that  in  the  length  of  the  life  of  a  bill  of  exchange  the  balance 
to  be  settled  in  gold  would  be  reduced  to  a  veiy  snudl  amount. 

Mr.  Newlands.  Have  you  observed  that  when  there  is  an  export  of 
gold  from  this  country  the  price  of  securities  in  the  New  York  market 
goes  doMu,  as  a  rule? 

]\rr.  Eckels.  Yes. 

]Mr.  Newlands.  And  have  you  observed  that  when  gold  is  imported 
to  this  country  that  the  price  of  securities  in  the  New  York  market  gen- 
erally rises? 

Mr.  Eckels.  Yes;  for  this  reason 

Mr.  Newlands.  Is  there  not,  then,  some  relation  between  the  quan- 
tity of  gold  in  the  country  and  the  prices,  not  only  of  our  securities, 
but  of  our  products? 

Mr.  Eckels.  No;  not  necessarily.  The  explanation  of  that  is  this: 
That  witli  the  ])resent  linancial  system  maintained  throughout  the 
United  States  the  General  Government  is  a  partner  in  everybody's 
business. 

The  Chairman.  Isn't  it  a  fact  that  you  have  seen  bonds  and  stocks 
in  New  York  being  dt^preciated  in  price  when  gold  was  being  exported, 
without  its  having  any  visible  effect  upon  the  price  of  other  products? 

Mr.  Eckels.  Yes. 

The  Chairman.  Isn't  it  much  more  frequent  that  a  money  panic 
occurs  without  it  in  any  way  affecting  the  indiistrial  conditions? 

Mr.  P]CKELS.  I  think  so.  The  falling  oft"  of  the  prices  of  stock  is  no 
indication  at  all  of  the  falling  oft' of  the  prices  of  other  things,  because 
the  stock  market  is  the  onething  which  is  most  affected  by  manipulation, 
by  rumors,  and  by  things  which  in  no  wise  aft'ect  the  price  of  products 
of  a  difterent  character. 

The  Chairman.  So  the  increasing  or  the  diminishing  of  the  price  of 
bonds  has  no  connection  with  the  question  whether  the  masses  of  the 
people  are  prosperous  or  otherwise? 

IVIr.  Eckels.  No,  sir ;  and  it  does  not  indicate  the  value  of  those  stocks 
or  bonds  particularly. 

Mr.  New^lands.  Would  it  not  be  a  fair  statement,  Mr.  Eckels,  to  say 
that  the  eftect  of  the  ex})ortof  gold  is  first  felt  ui)on  securities,  because 
they  are  the  properties  upon  which  quicker  realizations  can  be  made 
than  others,  and  that  is  but  a  part  of  the  general  effect  on  the  property 
and  ])roducts  of  the  country '! 

Mr.  Eckels.  Only  as  the  tiurry  in  securities  on  the  stock  market 
tends  to  create  a  condition  of  mind  upon  the  part  of  the  public  which 
curtails  credit  in  every  branch  of  business. 

Mr.  Newlands.  I  was  leferring  to  England.  I  said  that  an  export 
of  gold  from  England  would  have  a  tendency  to  lower  the  prices  of 
securities  there,  and  imports  of  gold,  I  presume,  would  have  a  corre- 
sponding tendency  to  increase  the  prices  of  securities  there.  You  have 
observed  that? 

Mr.  Eckels.  That  is  undoubtedly  so.  I  think  that  temporarily  any 
sudden  increase  in  the  amount  of  money  you  have  aft'ects  things.  Any 
sudden  decrease  in  the  amount  of  nu)ney  you  have  affects  things. 

Mr.  Newlands.  That  is  caused,  as  1  understand  it,  by  this,  that  the 


298  FINANCIAL    AND    BANKING    SITUATION. 

export  of  gold  gives  us  a  curtailment  of  credit  in  the  exporting  country, 
does  it  notf 

Mr.  Eckels.  It  would  depend  upon  the  conditions  which  surrounded 
that  export.  For  instance,  I  imagine  that  when  the  IJaring  failure 
occurred  any  large  ex])ort  of  gold  from  England  at  that  time  would 
have  created  a  great  curtailment  of  credit,  not  because  of  gold  itself 
going  out — because  I  don't  thiidv  England  could  lose  by  its  going  out 
and  something  coming  in  in  exchange  for  it — but  because  the  public 
mind  had  been  so  affected  by  so  great  a  failure  that  the  solvency  of 
perfectly  solvent  institutions  was  doubted.  So  that  the  effect  of  either 
au  exportation  or  importation  of  gold  upon  the  country  can  only  be  esti- 
mated by  the  business  conditions  prevailing  in  the  country  at  the  time 
the  one  or  the  other  thing  occurs. 

Mr.  Kewlands.  The  effect  will  be  accentuated  if  the  public  mind  is 
in  a  state  of  apprehension  ? 

Mr.  Eckels.  Yes;  and.  doubly  accentuated  if  public  credit  was 
involved  in  addition  to  that  of  individual  credit. 

Mr.  Xewland.s.  I  see.  There  is,  then,  a  relation  between  the  volume 
of  redemption  money  and  the  volume  of  credit  in  a  country;  is  there 
not  t     I  do  not  ask  what  relation. 

Mr.  Eckels.  Yes;  as  it  affects  the  mind  of  the  public,  going  toward 
the  ability  of  the  redemption  of  that  money,  and  undoubtedly  during  a 
time  of  public  apprehension  you  would  be  conn, )el led  to  increase  your 
volume  of  current  redemption  money.  During  that  time  everybody  who 
has  any  instrument  of  credit,  whetlier  it  be  one  issued  by  the  Federal 
Government  or  by  a  bank,  would  desire  to  put  that  thing  in  another 
form — to  put  it  into  the  form  of  actual  property  or  actual  payments, 
instead  of  sim]dy  a  promise  to  pay.  And  there  might  be  a  time  when 
5  or  10  per  cent  or  15  ])er  cent  of  gold  would  not  be  sufticient  for  current 
redemption,  if  the  public  mind  was  in  a  disturbed  condition.  On  the 
other  hand,  there  would  at  times  be  a  condition  where  1  i)er  cent  would 
not  be  recjuired. 

JMr.  NewlANDS.  ITow  do  you  account  for  it  if  France  has  a  suri)lus 
of  gold,  that  she  holds  on  so  tenaciously  to  the  $850,0(H>,()0U  of  gold  she 
has  now? 

Mr.  Eckels.  For  the  reason  that  there  is  a  continual  a])prehension 
in  France,  in  Germany,  and  all  continental  European  countries,  that 
war  disturbance  may  arise  and  the  necessity  of  having  immediately 
within  their  juiwer  the  means  of  sustaining  themselves  in  a  war.  A 
further  reason  is  that  the  French  ])eoi)le  do  not  use  banks  of  deposit, 
and  therefore  there  is  necessity  of  having  a  large  amount  of  metal 
money  to  use  in  the  daily  transactions  of  life.  Tiiey  estimate  their 
amount  just  as  a  grocer  estimates  the  amount  of  stock  he  has  to  carry 
in  his  store,  or  any  other  man  engaged  in  business — by  experience  with 
the  demands  of  peo])le  for  the  ])articu]ar  article  which  he  has  to  sell. 
They  estimate  that  amount  to  be  necessary  in  France  because  the  habit 
of  the  French  ])eoi)le  in  the  matter  of  the  transfers  of  ])roperty  is  to 
make  transfers  by  ])aying  the  actiuil  money  itself  instesul  of  by  giving 
redeemalde  ))romises  to  pay,  or  checks  or  bills  of  exchange. 

The  Chairman.  I  woidd  like  to  ask  two  or  three  questions  right 
there,  if  there  is  no  objection. 

EXPERIENTIA    DOCET. 

You  sj)oke  of  the  (puintity  of  gold  in  England.  Is  it  a  fact,  in  the 
continuation  of  your  idea,  that  these  things  can  only  be  known  by 
exi)eriencc — that  is  the  only  way  to  know  how  much  gold  is  necessary — 
isn't  tiie  experience  of  tlie  English   system  tlie  only  thing  that  the 


FINANCIAL   AND   BANKING    SITUATION.  299 

English  can  rely  upon ;  isn't  it  equally  true  of  tlie  Scotch ;  and  that  the 
amount  of  specie  they  have  has  beeu  proven  to  be  amply  saf[i(;ient; 
isn't  that  true  of  the  Irish,  although  that  is  a  part  of  Great  Britain, 
and  isn't  it  also  true  of  the  Canadians? 

Mr.  Eckels,  All  these  systems  are  based  upon  the  experience  that 
these  immediate  peo])le  have  of  themselves  had,  added  to  by  the  gen- 
eral principles  of  monetary  science  underlying  all  banking  and  mone- 
tary systems. 

The  Chairman.  But  the  modification  that  the  general  principles  of 
monetary  science  have  exerted  on  statesmen  as  to  what  should  be  made 
into  hiw  is  comi^aratively  slight,  is  it  nof? 

Mr.  Eckels.  I  think  in  some  instances  at  least  it  has  been. 

The  Chairman.  You  are  familiar  with  the  Suflfolk  system  of  Xew 
England,  are  you  not? 

Mr.  Eckels.  Yes;  somewhat. 

The  Chairman.  Is  it  not  reasonable  to  suppose  that  what  was  true 
of  ]Sfew  England  for  thirty  years  as  to  the  proportion  of  currency  in 
the  various  things  that  could  demand  currency  in  redemption,  would 
be  satisfactory  and  safe  ? 

Mr.  Eckels.  Modified  tochangethepresentmethod  of  doing  business. 

The  Chairman.  Then  when  you  come  to  the  last  analysis  of  these 
theoretical  propositions  they  would  and  ought  to  have  but  slight  influ- 
ence on  legislation  as  compared  with  the  actual  facts  developed  by 
looking  into  what  was  actually  done  and  to  the  conditions  now  in  the 
countries  named  or  in  our  own  country  and  what  were  the  facts  in  dif- 
ferent systems  in  previous  periods? 

Mr.  Eckels.  Except  that  the  theoretical  questions  tend  to  bring  out 
the  actual  facts,  and  I  think  that  somebody  has  said  where  there  is  a 
conflict  between  facts  and  theories  so  much  the  worse  for  the  theories. 

Mr.  Calderhead.  When  you  say  that  Pravice  clings  tenaciously  to 
a  large  amount  of  gold,  do  you  mean  the  people  of  France? 

Mr.  Newlands.  The  French  peo]»le  generally. 

Mr.  Calderhead.  What  has  legislation  to  do  with  that? 

Mr.  Eckels.  You  know  that  virtually  every  French  peasant  is  his 
own  banker.  He  does  not  use  banks  of  deposit;  he  does  not  trust 
banks;  he  keeps  his  metal  money  and  does  not  exchange  it  for  notes 
with  the  banks.  It  is  in  the  cities  where  that  thing  prevails,  and  con- 
sequently there  is  a  necessity  for  a  larger  store  of  the  metal  medium  of 
,  exchange. 

Mr.  Newlands.  Then,  taking  into  consideration  the  existing  condi- 
tions of  France,  and  the  lack  of  banking"  facilities,  etc.,  you  do  not 
regard  the  French  people  as  unwise  in  holding  on  to  this  $850,000,000 
of  gold,  do  you  ? 

Mr.  Eckels.  I  do  not  regard  them  as  unwise  in  holding  on  to  the 
amount  which  the  necessities  of  business  re([uire. 

Mr.  Newlands.  Experience  would  tell  them  as  to  what  the  necessi- 
ties of  business  require. 

Mr.  Eckels.  1  would  take  all  their  experience;  .and  I  find  in  one 
instance  England  was  short  of  gold,  but  then,  when  they  wanted  it 
they  got  it  immediately  from  the  Bank  of  France,  You  can  not  say 
you  luust  have  always  the  same  amount  of  gold  in  existence  in  the 
country  all  the  time. 

Mr.  Newlands.  Do  you  remember  how  much  they  got  from  the 
Bank  of  France  at  tliat  time? 

Mr.  Eckels.  £15, 000,000,  1  think. 

The  Chairman.  They  got  the  right  to  £15,000,000,  but  actually  got 
less  than  £0,000,000. 


300  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Xewland.s.  I  am  simply  finding-  out  -with  regard  to  the  country 
tliat  has  a  surpkis  of  gold,  and  in  regard  to  these  countries  tbat  have 
a  sufficiency  of  gokl,  and  1  am  iuquiring  now  whether  France  has  too 
much  gokl.  I  understand  Mr.  Eckels  i^ractically  admits  that  the  experi- 
ence of  the  country  is  a  safe  guide,  with  reference  to  its  condition  of 
banking  and  business,  that  it  is  not  unwise  to  keep  on  hand  8850,000,000 
of  gold — that  is,  he  will  trust  to  experience  as  to  the  wisdom  of  it. 

NUMBER   OF   BANK   DEPOSITORS   IN   THIS   COUNTRY. 

Mr.  Eckels.  But  coupled  with  the  statement  that  we  have  always 
been  able  to  furnish  gold  when  demand  is  made  for  it.  Two  years  since, 
I  made  an  investigation  at  the  Chairman's  request  of  the  number  of 
bank  depositors  in  this  country — State,  savings,  private,  national,  and 
all.  There  were  over  0,000,000  of  them.  That  fact  was  so  potent  as  indi- 
cating the  extent  to  which  credit  instruments  were  used  in  this  country 
that  tlie  Banker's  ^lagazine,  of  London,  called  attention  to  it  as  indicat- 
ing a  condition  of  affairs  here  that  must  necessarily  give  our  people  a 
tremendous  advantage  in  time  over  other  commercial  people  with  whom 
we  were  dealing,  as  lessening  the  amount  of  actual  money  which  they 
must  use  and  otherwise  in  the  methods  of  transferring  property,  because 
9,000,000  people  depositing  in  banks  means  an  enormous  use  of  checks 
and  drafts  and  a  corres])onding  reduction  of  the  use  of  actual  money 
passing  from  hand  to  hand. 

The  Chairman.  Paper  money  or  coin  money! 

Mr.  Eckels.  Yes ;  either  one. 

Mr.  Newlands.  Do  you  think  credit  can  be  used  too  extensively  in 
business? 

Mr.  Eckels.  Yes;  it  can.    Overtrading  can  impede  business. 

Mr.  Newlands.  Can  you  have  a  very  large  increase  in  the  credits  of 
the  country  or  the  world  without  correspondingly  increasing  the  base 
in  the  shape  of  primary  money  of  redemption  ? 

Mr.  Eckels.  1  think  we  can  have  a  very  large  increase  of  credits 
safely  if  we  have  an  increase  in  the  amount  of  property  in  the  country. 
I  do  not  think  it  depends  on  the  amount  of  what  you  term  ]>riniary 
money,"but  it  depends  upon  what  has  been  transferred — the  increase  in 
the  value  or  the  amount  of  that  which  is  being  transferred  by  your 
credit  instruments. 

Mr.  Calderhead.  I  would  like  to  inquire  whether  you  think  a  very^ 
large  increase  in  the  deposits  of  a  country  would  make  an  increase  of 
gold  necessary  by  that  country. 

Mr.  Eckels.  Not  necessarily;  no. 

Mr.  Calderhead.  It  would  not  have  anything  to  do  with  it, 
would  it? 

Mr.  Eckels.  No.  The  values  of  those  deposits  depend  largely  on 
the  things  in  which  those  deposits  are  invested,  because  as  soon  as  a 
deposit  is  brought  into  a  bank  it  is  expected  it  will  be  loaned  out  and 
take  the  shape  of  some  property  which  is  of  value.  The  expectation 
would  be  that  the  bank  every  day  would  loan  out  the  amount  it  took 
in.  The  measure  of  the  safe  extension  of  credit  is  the  measure  of  the 
value  of  tlie  pro])erty. 

Mr.  Newlands.  Do  I  understand  you,  then,  to  point  to  England, 
France,  and  Germany  as  the  countries  which  have  a  surplus  of  gold 
which  can  be  drawn  upon  in  order  to  enable  the  United  States  to 
establish  a  proper  monetary  system,  and  also  these  other  countries 
which  have  a  large  amount  of  uncovered  i)aper  outstanding;  you  think 
those  are  the  three  countries  which  can  be  drawn  u])on  for  gold? 


FINANCIAL    AND    BANKING    SITUATION.  301 

Mr.  Eckels.  They  can  be  drawn  upon  if  we  needed  any  more,  and 
undoubtedly  if  we  wanted  more  than  they  could  supply  us  with  we 
wouhl  buy  it  directly  from  the  miner,  not  only  here,  but  in  Africa  or 
anywhere  else,  and  have  it  coined. 

The  Ciiair:man.  Isn't  it  a  fact  whatever  coin  money  exists  must  nec- 
essarily be  used,  and  tlie  fact  of  the  existence  of  a  huge  body  of  coin 
in  the  country  is  not  a  proof  that  it  is  necessary  to  have  that  to  do  the 
hirge  business  of  the  country? 

Mr.  Eckels.  Undoubtedly,  and  the  strongest  criticism  which  has  been 
presented  against  the  Bank  of  England  is  that  it  unnecessarily  keeps 
locked  up  such  a  tremendous  amount  of  gold. 

VISIBLE    GOLD. 

The  Chairman.  Isn't  it  a  fact  she  puts  dow^n  her  rates  of  discount 
to  1  and  2  and  2^  ])er  cent  to  dispense  the  gold  when  she  tinds  she  has 
too  much  and  when  she  linds  it  is  l)eing  too  rapidly  withdrawn  she  puts 
up  her  rate  to  keep  the  gold?  Isn't  it  a  fact  that  all  the  visible  com- 
mercial gold  in  England  is  now  about  $175,000,000,  but  ordinarily  it  is 
$120,000,000  to  $135,000,000  I 

Mr.  Eckels.  Yes;  as  to  the  rates  of  discounts  and  the  purpose  of 
them.  I  do  not  know  exactly  the  amount  of  visible  gold,  but  it  is  com- 
paratively a  very  small  amount  at  present. 

The  Chairman.  Is  it  not  a  fact  furthermore,  that  the  gold  in  the 
pockets  of  the  people  is  held  on  to  tighter  in  case  of  excitement  or  panic 
and  they  do  not  pay  it  out  then  i? 

Mr.  Eckels.  That  is  undoubtedly  true. 

Mr.  Newlands.  Is  it  not  a  fact  that  the  exports  of  gold  from  various 
countries  and  the  imports  to  them  are  watched  very  caretvilly  by  all 
people  interested  in  business,  and  particularly  in  financial  business? 

Mr.  Eckels.  I  think  that  is  so,  but  they  are  watched  with  more 
anxiety  by  this  people  than  any  other  people  on  the  face  of  the  earth, 
because  ours  is  the  one  people  that  has  its  Government  in  partnership 
with  every  individual  who  is  carrying  on  business. 

BISMARCK  ON  THE  SUPPLY  OF  GOLD. 

Mr.  Newlands.  Now,  I  ask  whether  the  statement  attributed  to  Bis- 
marck is  not  substantially  true,  that  this  gold  blanket  is  not  sufUciently 
large  to  cover  all  the  nations  of  the  world,  and  when  one  nation  tugs  at 
it  it  exposes  the  naked  members  of  the  otlier  nation? 

Mr.  Eckels.  No;  and  I  think  Bismarck's  opinion,  among  men  who 
are  informed  on  this  subject,  has  less  weight  in  hnancial  affairs  than  the 
opinion  of  any  other  statesman  who  ever  rose  to  his  prominence  in  j^ub- 
lic  life. 

Mr.  Newlands.  With  reference  to  the  production  of  gold,  you  rely 
upon  that  to  supply  the  wants  of  these  countries  that  have  these  large 
amounts  of  uncovered  paper  money  ? 

Mr.  Eckels.  As  a  contributing  element  ? 

Mr.  Newlands.  Yes;  as  a  contributing  element.  At  what  figure  do 
you  put  the  production  of  gold  during  the  past  year? 

Mr.  Eckels.  I  do  not  know;  I  suppose  $225,000,000. 

Mr.  Newlands.  That  is  the  largest  production  known  in  the  history 
of  the  world,  is  it  not? 

Mr.  Eckels.  Yes. 

Mr.  Newlands,  The  world  is  searching  for  gold  now  very  energet- 
ically. 


302  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  Yes. 

Mr.  Xewlands.  Doesn't  that  indicate  a  great  demand  lor  gold? 

GOLD    A    YALX'ABLK    I'KOPKETY    TO    IIAYK. 

Mr.  Eckels.  Yes;  undoubtedly;  or  it  indicates  at  least  that  the  peo- 
ple think  it  is  goino-  to  be  a  valuable  property  to  have. 

]\Ir.  Newland^.  o^ow,  as  to  that  annual  ])roduction  of  gold,  have  you 
any  information  as  to  how  much  of  it  is  really  absorbed  in  the  monetary 
systems  of  the  world  and  how  much  goes  to  dentistry  and  the  other  arts  ? 

Mr.  Eckels.  I  imagine  all  goes  into  the  monetary  systems  of  the 
world  that  can  possibly  be  used  to  the  best  advantage  by  the  monetary 
systems  of  the  world,  and  that  which  can  be  best  used  in  the  arts,  and 
thereby  bring  more  profit  to  the  owner  of  the  gold,  goes  into  the  arts. 
It  is  necessary,  of  course,  to  buy  the  gold  to  coin  into  money. 

Mr.  Newlands.  What  proportion  goes  into  money? 

Mr.  Eckels.  I  do  not  know  exactly. 

Mr.  Newlands.  a  large  proportion  goes  temporarily  into  money  and 
finally  into  the  arts? 

Mr.  Eckels.  It  changes.  It  stays  in  money  as  long  as  it  can  best 
be  used  for  money,  and  when  it  is  of  more  value  in  the  arts  it  goes  to  the 
melting  pot. 

Mr.  Newlands.  Do  you  think  more  than  one-half  of  it? 

Mr.  Eckels.  I  would  not  undertake  to  give  the- exact  proi)ortion. 

The  Chairman.  That  is  a  matter  of  public  record. 

Mr.  Eckels.  I  have  not  the  statistics  here:  but  I  have  always 
observed  this,  that  there  has  never  been  a  time  in  the  history  of  this 
l)eople,  or  any  other  x)eople,  that  there  was  not  a  sufficient  amount  of 
gold  obtainable  if  it  was  needed.  Of  course,  sometimes  more  must  be 
paid  for  it  than  at  other  times,  just  as  you  have  to  pay  more  for  com- 
modities at  certain  times  than  at  other  times;  but  it  can  always  be 
bought  by  paying  enough  for  it. 

Mr.  jSTewlands.  Do  you  know  what  statisticians  have  estimated  as  to 
the  percentage  of  gold  produced  that  goes  into  the  arts — dentistry,  etc.? 

GOLD    IN   THE   ARTS. 

Mr.  Eckels.  Xo;  I  do  not  know  what  their  estimate  is,  and  I  do  not 
care  particularly,  because  I  do  not  think  it  affects  the  question.  My 
theory  is  that  there  always  goes  into  money  that  which  can  be  best 
used  for  money  and  there  always  goes  into  the  arts  that  which  can  be 
best  used  in  the  arts. 

Mr.  Johnson.  Yon  would  not  be  alarmed,  then,  to  see  a  large  amount 
of  it  being  used  in  the  arts? 

Mr.  Eckels.  I  would  not  <'are  if  95  per  cent  of  it  was  used.  It 
would  indicate  the  condition  of  business  Avas  such  that  it  could  more 
profitably  be  used  by  putting  that  proportion  into  the  arts,  and  that  it 
was  therefore  not  needed  for  money. 

Mr.  Xewlands.  Isn't  it  true  that  the  more  valuable  gold  becomes 
the  greater  demand  there  is  for  it  in  tlie  arts  and  on  account  of  the 
very  fact  that  the  whole  world  is  seeking  for  gold  it  makes  it  desirable 
in  the  arts  ? 

jMr.  Eckels.  J  think  that  is  so.  I  think  some  eminent  authorities 
have  said,  the  higher  becomes  the  ]>rice  of  gold  the  better  for  the  peo- 
ple, for  the  reason  that  it  decreases  the  inconvenience  of  bringing 
about  exchanges  of  property.      The  objection  to  any  money  which 


FINANCIAL    AND    BANKING    SITUATION.  303 

increases  the  bulk  of  tlie  tliiiii;'  wliich  is  to  do  ;i  certain  required  work 
is  tluit  it  tliereby  lessens  the  profits  to  the  person  who  is  handling  that 
money. 

APPKECMATION    OF    aOLD. 

Mr.  Xewlainds.  You  believe,  therefore,  that  it  is  a  good  thing  that 
money  should  increase  in  value? 

Mr.  Eckels.  I  do  not  think  there  is  any  harm  in  it  at  all. 

Mr.  Newlands.  You  think  that  if  gold  appreciates  it  is  a  good  thing? 

Mr.  Eckels.  I  do  not  think  it  would  in  any  wise  work  a  single  loss  to 
anybody. 

Mr.  Newlands.  JJo  you  think  that  gold  has  appreciated  ? 

Mr.  Eckels.  No. 

Mr.  Newlands.  You  think  it  is  a  stable  measure  of  value? 

Mr.  Eckels.  I  think  it  is  a  stable  measure  of  value. 

The  Chairman.  Is  it  not  a  fact,  Mr.  Comptroller,  that  when  you 
speak  of  gold  being  more  valuable  in  the  arts,  or  going  into  the  arts 
rather  than  into  money,  it  is  not  a  matter  of  increasing  its  price,  but 
that  the  bankers  and  the  money  users  having  reached  the  amount  neces- 
sary in  the  reserve  to  be  held,  the  balance  goes  into  the  arts,  so  that 
the  bankers  and  the  people  are  not  at  the  exijense  of  holding  it  in  a 
money  form  ? 

Mr.  Eckels.  More  valuable  in  that  form. 

The  Chairman.  More  valuable  because  it  is  not  necessary  to  use  a 
reserve  ?  Is  it  not  a  fact  that,  except  in  England  and  California,  pretty 
generally,  the  use  of  gold  has  gone  out  as  currency  money  and  that 
paper  and  silver  are  being  used  as  currency  to  the  exclusion  of  gold? 

Mr.  Eckels.  Yes;  and  people  do  not  want  to  carry  silver  because 
they  j)refer  to  carry  paper.  All  these  things  have  to  be  gauged  by  the 
habits  of  the  peoi)le,  and  by  their  continual  desire  to  have  this  thing  or 
that  which  least  inconveniences  them  and  is  of  the  least  expense  and 
best  answers  the  immediate  purpose.  It  would  be  about  as  reason- 
able to  desire  to  go  back  to  old  things  in  the  methods  of  transportation, 
or  in  anything  else  as  it  would  to  go  back  to  something  which  simply 
increases  the  inconvenience  of  doing  a  thing  which  you  wanted  accom- 
plished in  the  best  way. 

Mr.  Newlands.  I  understand  you  to  say  that  you  regard  gold  as  a 
suitable  measure  of  value,  and  you  regard  it  as  a  good  thing  if  it  appre- 
ciated in  value? 

Mr.  Eckels.  I  said  that  I  do  not  think  any  harm  would  follow  from  it. 

The  Chairman.  Are  tliere  any  other  members  who  desire  to  ask  any 
questions  in  the  line  of  the  questions  that  have  been  asked  by  Mr. 
Newlands? 

bimetallism. 

Mr.  Johnson  (to  Mr.  Newlands).  Why  don't  you  put  the  direct  ques- 
tion to  him  ? 

Mr.  Newlands.  What  was  the  direct  question? 

Mr.  Johnson.  Why,  the  question  you  have  been  driving  at  all  through 
your  long  examination — whether  or  not  bimetallism  is  necessary  in 
order  to  get  a  broad  enough  basis  for  the  issue  of  paper  money. 

Mr.  Eckels.  If  that  is  the  purpose  of  Mr.  Newlauds's  general  tenor 
of  questions,  it  will  take  but  a  few  minutes  to  say  a  word  on  bimetal- 
lism. If  I  may  be  permitted,  I  would  like  to  round  out  some  things  I 
have  said  on  this  subject. 


304  FINANCIAL    AND    BANKING    SITUATION. 

I  liave  touclied  upoTi  the  question  of  the  use  of  metallic  moneys,  and, 
"wbetber  or  not  I  am  correct,  1  Lave  reason  to  tbiuk  that  Mr.  Newlands 
is  a  believer  in  bimetallism. 

Mr.  Johnson.  Tbere  is  a  suspicion  of  that  kind  in  the  committee 
room. 

Mr.  Eckels.  From  some  of  the  inquiries  made  on  Thursday  and  my 
replies  I  am  sure  tliat  he  will  draw  the  inference  that  1  am  not  a 
believer  in  bimetallism,  that  1  believe  in  the  single  gold  standard  as 
being  the  thing  which  is  most  essential  to  the  proper  conduct  of  the 
business  of  a  commercial  nation  having  transactions  with  other  commer- 
cial nations  desiring  that  which  will  best  meet  the  needs  of  commerce. 

BIMETALLISM    AN    IMPOSSIBILITY. 

I  do  not  believe  that  bimetallism  would  add  in  the  least,  if  it  were  a 
possible  thing,  to  facilitating  commercial  exchanges  or  aid  in  the  trans- 
fer of  proi»erty.  As  a  practicable  thing  it  is  an  impossibility,  because 
there  never  yet  has  been  seen  in  the  history  of  commercial  nations,  or 
in  the  history  of  any  i)eople  that  have  undertaken  to  maintain  mone- 
tary systems  in  practical  operation,  simultaneously,  the  things  which 
are  essential  to  the  maintenance  of  a  bimetallic  standard.  Those  things 
are,  if  it  is  possible  in  the  maintenance  of  a  national  bimetallic  standard 
and  a  national  bimetallic  currency,  a  ratio  to  be  fixed  upon  by  law  as 
between  two  metals,  which  ratio  ought  to  be  as  nearly  as  jiossible  the 
commercial  ratio  as  the  lawmaking  jtowers  are  able  to  ascertain,  if  it  is 
international  bimetallism  then  the  ratio  agreed  upon  between  the  agree- 
ing nations. 

There  must  be  in  addition,  made  of  that  silver  and  that  gold,  money 
of  absolute  redemption,  every  dollar  coined  being  of  the  value  of  every 
other  dollar  entering  into  circulation.  Every  dollar  must  maintain 
itself  iiidependently,  so  that  one  dollar  can  be  exchanged  for  the  other 
without  any  loss,  or  a  man  transfer  property  and  receive  i^ayment 
therefore  either  in  silver  or  gold  without  any  loss. 

Again,  there  must  be  uidimited  legal-tender  properties  attaching  to 
each  and  every  dollar  of  the  dollars  coined  out  of  the  gold  and  silver 
upon  the  ratio  agreed,  and  there  must  be  full,  unlimited  free  coinage  of 
both  metals.  When  all  these  elements  are  provided  for,  concurrent  cir- 
culation of  the  dollars  so  coined'out  of  the  two  metals  must  always  be 
present.  If  at  any  time  any  one  of  these  elements  which  1  have  enum- 
erated is  wanting,  a  country  has  not  a  bimetallic  standard  and  a 
bimetallic  circulation,  but  it  has  either  an  alternating  standard  and 
circulation  or  a  single  standard  with  a  single  coin  in  circulation. 

1  am  contideut  that  it  can  not  be  i)ointed  out  that  for  a  single  day  in . 
the  history  of  the  United  States,  under  the  operation  of  any  coinage  act, 
there  have  ever  been  these  four  elements  essential  to  the  maintenance  of 
abimetallic  standard  in  combined  action.  Wehave  never  had  a  time  in 
our  history  where  the  two  metals  have  circulated  independent  of  each 
other,  each  metal  maintaining  its  full  value  indei)endent  of  the  other 
metal.  We  have  never  had  independent  concurrent  circulation  and 
without  such  concurrent  circulation  and  such  absolute  independence  of 
the  sustaining  power  of  one  metal  under  the  other  we  have  not  two 
moneys  of  ecpial  icdemittive  powers.  If  we  have  to  maintain  our  silver 
with  a  gold  ])rop  under  it,  then  silver  is  not  a  money  of  rcden)ption,  and 
if  we  have  to  maintain  our  gold  with  the  silver  under  it  gold  is  not  a 
money  of  redemption.  Unless  a  man  can  exchange  his  property  and 
his  dollars  without  loss,  whether  or  not  he  receives  the  silver  or  the  gold, 
lie  is  not  given  a  money  whicli  in  and  of  itself  is  the  equal  in  value  of 


FINANCIAL    AND    15ANKING    SITUATION.  305 

the  other  form  of  money  wliich  enters  into  the  inainteiiance  of  the 
bimetallic  circulation  of  the  country. 

Thus  far  in  this  country  we  have  had  only  the  single  standard  and  a 
single  self-sustaining  circulation.  At  one  time  a  silver  standard  and  a 
silver  circulation,  at  another  a  gold  standard  and  ;i  gold  circuhition, 
but  never  a  bimetallic  standard  and  a  bimetallic  circulation,  ^uch  a 
thing  1  believe  to  be  an  absolute  impossibility. 

Mr,  Newlanus.  You  have  observed  throughout  that  I  have  hardly 
used  the  Avord  "silver'' in  tliis  inquiry.  My  whole  inf|uiry  has  been 
directed  to  finding  out  whether  or  not  there  is  suthcient  gold  m  the 
world  for  redemption  purposes  and  whether  under  the  banking  system 
that  is  ]»roposed  we  can  procnre  enongh  gold  in  this  country  for 
redem])tion  purposes.  My  incpiiry,  therefore,  lias  been  directed  to  asc;er- 
taining  the  stocks  of  gold  in  the  different  countries  of  the  world,  and 
the  possible  requirements  of  countries  that  are  now  struggling  to  get 
upon  the  gold  standard  and  to  make  gold  redemption. 

The  CiiAiiJMAN.  Mr.  Comptroller,  in  1893  I  received  from  your  Depart- 
ment, or  copied  from  your  report,  a  statement  that  it  cost  $137.48  per 
$100,000  for  the  redeniption  of  currency.  In  the  testimony  given  by 
the  Secretary  of  the  Treasury  in  1893,  on  $75,000  he  reports  that  the 
annual  cost  for  the  redemption  was  $37,50,  express  charges  $2,50 — I 
su])pose  those  are  to  be  included — making  $40. 

Mr.  Eckels.  Yes. 

The  Chairman.  That  would  make  the  entire  cost  on  $100,000  $53.33, 
or  one-third  more  than  Mr.  Carlisle  figures  on  $75,000.  Jn  your  report 
I  think  you  say  it  cost  $45  and  some  odd  cents  per  $100,000,  didn't  you  ? 

Mr.  Eckels.  1  don't  remember  the  exact  figures.     1  will  look  that  up. 

The  Chairman.  Now,  the  number  of  redemptions  under  the  Suffolk 
system  averaged  in  ordinary  years  about  five.  As  shown  in  the  paper 
sent  here  by  Treasurer  D.  N.  Morgan,  December  1,  189G,  it  cost  $1,125 
per  $1,000  to  make  the  redemptions,  and  if  it  is  averaged  to  be  redeemed 
five  times — that  is  to  say,  each  $1,000 — the  redemptions  Avill  be  a  total 
cost  of  $6.62i,  and  that  would  l)e  $502.50  instead  of  $137.50  on  $100,000 
of  bank  notes.  The  point  is  whether  the  $137.50  covers  merely  the 
actual  redemptions  of  each  $100,000  each  time,  or  whether  that  would 
cover  the  whole  of  the  nnmey  in  circulation  in  its  actual  redemption,  if 
our  paper  money  was  all  bank  currency  and  frequently  redeemed? 

The  Treasurer's  figures  are  as  follows : 

Treasury  Detartment,  Office  of  the  Treasurer, 

Washington ,  D.  C,  December  1,  1896. 
The  charges  for  trausportation  aud  the  costs  for  assorting  the  notes  of  national 
banks  redeemed  during  the  fiscal  year  ending  June  30,  1896,  under  the  act  approved 
June  20,  1874  (18  Statutes,  123),  were  as  follows: 

Charges  for  transportation $32,  518.  03 

Costs  for  assorting: 

Salaries $77,  7(5(1.  S-i 

Printing,  binding,  and  stationery 2,  825.  97 

Contingent  expenses .., 974.19 

81,r.66,  70 

Total 114,  085.  63 

These  expenses  have  been  assessed  n])on  the  several  national  banks  in  proportion 
to  the  circulation  redeemed.  The  aggregate  amount  redeemed  aud  assorted  during 
the  liscal  year  was  $101,409,451.50,  giving  $1. 12^  as  the  average  rate  for  each  $1,  000. 

On  November  1,  1S94,  he  says: 

The  contract  rates  for  the;  transportation  of  all  kinds  of  pai)er  currency  to  or  from 
Washington  are — 

CUR 20 


306  FINANCIAL    AND    BANKING    SITUATION. 

Between  Wasliiiiglon  ami  points  in  tbo  territory  of  the  Uuitecl  States  Express 
Company  and  reached  by  it,  I'O  cents  per  !fl,000  or  fractional  part  thereof  over  $500; 
sums  of  $500  or  fractional  part  thereof,  10  cents. 

Between  Washington  and  points  in  the  territory  of  another  express  company, 
excepting  points  in  Texas,  Arkansas,  Colorado,  Kansas,  Nebraska,  5lontana,  North 
Dakota.  South  Dakota,  Wyoming,  and  the  Indian  and  (Oklahoma  Territories,  60  cents 
per  $1,000  or  fractional  part  thereof  over  $500 ;  sums  of  $500  or  fractional  part  thereof, 
40  cents. 

Between  Washington  and  points  in  Colorado,  Kansas,  and  Nebraska,  75  cents  per 
$1,000  or  fractional  part  thereof  over  $500;  snms  of  $-500  or  fractional  part  thereof, 
50  cents. 

Between  Washington  and  points  in  Texas,  Arkansas,  Montana,  North  Dakota,  South 
Dakota,  Wyoming,  and  the  Indian  and  Oklahoma  Territories,  $1  per  $1,000  or  frac- 
tional part  thereof  over  $500;  sums  of  $500  or  fractional  ])art  thereof,  65  cents. 

Express  charges  aio  paid  by  tlie  (Government,  at  contract  rates,  on  standard  silver 
dollars  sent  by  the  Treasurer  or  Assistant  Treasurer  in  snms  or  multiples  of  $500,  on 
tractional  silver  coin  in  sums  of  $200  or  more,  and  on  minor  coin  sent  from  the  mint 
at  Philadelphia  in  sums  or  multiples  of  $20. 

Thereupon   at  4  p.  m.  tlie  committee  adjourned. 

Committee  on  Banking  and  Currency, 
Washington,  J).  C,  Tuesday,  February  2,  1S97. 
The  committee  met  at  10,30  a.  m. 

Members  present :  Tlie  chairman  (Mr.  Walker)  and  Messrs.  Brosius, 
Van  Voorhis,  McCleary,  Fowler,  Lefever,  Spalding,  Calderhead,  Hill, 
Cox,  iStallings,  Black,  Newlands,  and  Hendrick. 

Hon.  James  H.  Eckels,  Comptroller  of  the  Currency,  appeared  before 
the  committee  and  continued  his  statement  begun  on  January  28, 1897. 

STATEMENT   OF   HON.  JAMES   H.  ECKELS,  COMPTROLLER  OF  THE 

CURRENCY— Continued. 

The  Chairman.  Mr.  Comptroller,  1  asked  you  some  questions  yester- 
day, the  answers  to  which  we  want  in  the  record  in  order  to  complete 
that  matter  discussed. 

Mr.  Eckels.  The  reporter,  by  referring  to  his  notes  of  yesterday's 
hearing,  will  find  that  you  asked  me  a  number  of  questions  relative  to 
the  cost  of  redemption  of  national-banking  notes  in  1893,  stating 

The  Chairman.  Some  are  for  1893,  and  some  are  for  1894;  and  the 
figures  I  gave  you  are  from  the  very  last  report  of  last  year. 

COST    OF    BANK-NOTE    REDEMPTION. 

Mr.  Eckels.  Yes;  I  asked  the  chiefof  the  redemption  division  of  the 
Comptroller's  office  to  give  me  a  statement  of  the  cost  of  the  redemjition 
of  the  national-banknotes  fortheyear  ending  June  30, 1893,  as  requested 
by  Mr.  Walker,  and  heinformed  me  thatthe  cost  was  $1.3551  per$l,000, 
or  $135.51  per  $100,000  actually  redeemed  and  assessable.  He  further 
informed  me  that  the  estimated  cost  of  maintaining  $100,000  of  the 
circulating  notes  issued  to  a  bank  is  estimated  tobeaboutone-tweutieth 
of  1  i)er  cent,  or  about  $50  per  year. 

The  Chairman.  That  is,  for  each  redemption f 

Mr.  Eckels.  Yes;  for  the  year — about  $50  per  year. 

Mr.  Fowler.  I  do  not  understand  that  that  clears  the  first  proposi- 
tion. 

Mr.  ErivELS.  The  cost  for  redemption  of  national-bank  notes  for  the 
year  ending  June  30, 1893,  was  $1.35  lor  each  $1,000  actually  redeemed. 


FINANCIAL    AND    BANKING    SITUATION.  307 

The  Chaik>ia>".  Fifty  dollars  per  year,  with  the  notes  actually 
redeemed,  as  it  has  actually  taken  phu^e  under  our  present  system  of 
redeeminji'  national-banking  circulation. 

Mr.  KcKEL.s.  Tlie  §i;}5.r)l  per  $1()0,()(»()  of  notes  redeemed  in  the  year 
18U3  was  for  that  year  only.  Last  year — 189G — the  cost  was  reduced 
to  $l.V2h  per  $1,0()0,  or  $112.50  per  $100,000,  and  the  total  amount 
redeemed  was  about  one-half  of  the  outstanding  national-bank  circula- 
tion, or  s10S,2(jO,!>78. 

The  Chairman.  That  is  to  say,  the  total  cost  of  tlie  redemption  for 
the  year,  divided  by  the  total  sunt  of  currency  that  the  banks  had  out 
that  year,  amounts  to  the  $1.3551  per  thousand,  or  whatever  it  is. 

Mr.  Eckels.  Yes. 

The  Chairman.  Then,  of  course,  if  this  currency  should  average  to 
be  redeemed  twice  or  thrice  or  live  times  you  would  have  that  many 
more  times  the  estimate  given  ? 

Mr.  Eckels.  But  the  estimate  is,  that  for  a  bank  having  $90,000  in 
circulating  notes  the  amount  redeemed  per  year  is  about  50  per  cent  of 
the  entire  circulation. 

The  Chairman.  IJedeemed  once. 

Mr.  Eckels.  Yes;  and  the  greater  the  amount  actually  redeemed 
the  less  cost  per  thousand  for  redemption. 

Tlie  Chairman.  So  that  if  the  redemption  was  done  five  times  on 
each  note  it  would  not  be  five  times  the  amount  as  shown  there? 

Mr.  Eckels.  ]So. 

The  Chairman,  Because  the  packages  that  came  in  would  be  larger? 

Mr.  Eckels.  Yes;  and  the  cost  of  handling  less,  so  that  the  cost  per 
thousand  lessens  with  the  number  of  times  of  redemption.  You  had, 
Mr.  Chairman,  a  statement  to  the  effect  that  the  number  of  redemptions 
under  the  Suffolk  system  averaged  in  ordiuary  years,  about  five;  and, 
as  shown  in  the  paper  sent  here  by  Treasurer  Morgan,  dated  December 
31,  189G,  it  cost  $1.12i  per  thousand  to  make  redemptions. 

The  Chairman.  And  if  notes  are  averaged  to  be  redeemed  five 
times- 

Mr.  Eckels  (continuing).  That  is  to  say,  each  $1,000  of  redemption 
will  be  a  total  cost  of  $5.G2i,  and  that  'would  be  $502.50  instead  of 
$137.50  on  $100,000  of  bank"  notes.  The  point  is,  whether  $i;{7.50 
covers  merely  the  actual  redemption  of  the  $100,000  each  time  or 
whether  that  would  cover  the  whole  of  the  money  in  circulation  in  its 
actual  redemption,  if  our  paper  money  were  all  bank  currency  and  fre- 
quently redeemed.  To  that  statement  of  yours  the  chief  of  the 
redemption  division  of  the  Comptroller's  office  has  added  this  note. 

The  altove  calculation  of  $5,625  is  for  $5,000  redeemed  and  at  the  same  rate.  It 
should  be  $112.50  per  $100,000,  instead  of  $562.50. 

The  Chairman.  He  did  not  know  what  he  was  talking  about  and  I 
did. 

Mr.  Eckels.  He  seemed  to  have  the  opinion  that  he  did,  and  that 
you  did  not. 

The  Chairman.  The  facts  are  that  the  records  show  that  the  total 
circulating  notes  in  New  England  was  averaged  to  be  redeemed  about 
five  times  each  year.  What  1  wanted  to  get  at  was,  if  the  total  cur- 
rency of  the  country  was  redeemed  five  times  each  year  whether  it 
would  not  cost  five  times  what  a  single  redemj^tion  would  cost.  The 
larger  the  volume  you  redeem  the  less  is  the  cost  per  $1,000.  Is  it  oris 
it  not  a  fact,  Mr.  (/omptroller,  that,  other  things  being  equal,  the  larger 
the  territory  covered  by  any  system  of  coin  redemption,  the  less  per- 
centage of  coin  to  the  total  liabilities  of  a  bank  is  needed,  because  of 


308  FINANCIAL    AND    BANKING    SITUATION. 

the  varied  industries,  aud  tbe  varied  times  at  which  crops  are  gathered, 
so  that  each  business  measurably  bakmces  the  other?  Now,  ^yhat  is 
your  judgment  on  that? 

Mr.  Eckels.  You  mean  overthewholecountryoriTidividual  localities'? 

The  Chairman.  Over  the  whole  country.  1  will  read  the  (juestiou 
again. 

The  Chairman  repeated  the  question. 

Mr.  Eckels.  I  think  that  is  so,  if  the  same  perfection  exists  in  the 
banking  system  in  one  ])art  of  the  territory  as  in  the  other. 

The  Chairman.  I'hat  is  assumed.  Secondly,  is  it  not  a  fact  that  the 
larger  and  more  varied  the  interests  iucluded  in  any  banking  system, 
the  less  percentage  of  coin,  to  the  total  of  volume  of  liabilities,  is  needed  ? 

Mr.  Eckels.  That  is  unquestionably  so,  because  the  mote  interests 
transacting  their  business  through  the  bank  the  less  occasion  there  is 
for  the  handling  of  coin  in  the  transfer  of  property  and  the  more  there 
is  of  transferingof  proi)erty  through  instruments  of  credit  issued  through 
the  banks. 

The  Chairman.  In  any  banking  system  where  the  currency  is  put  in 
circulation,  is  it  not  a  fact  that  the  depositors  make  a  larger  draft  on 
the  coin  held  for  redemption  than  the  class  of  people  that  use  the  cur- 
rency that  is  issued  l)y  the  banks! 

Mr.  Eckels.  I  stated  yesterday  that  the  note  holder  was  less  liable 
to  come  to  a  bank  for  the  redemption  of  his  note  than  the  depositor* 
for  the  reason  that  people  do  not  wish  to  carry  with  them  a  metallic 
currency  except  when  there  is  some  absolute  necessity  for  so  doing. 
Therefore  the  bank-note  currency  redemptions  are  less  frequent  than 
the  redemjition  of  what  might  be  termed  deposit  currency. 

The  Chairman.  You  are  talking  now  of  final  redemi^tion  in  coin? 

Mr.  Eckels.  Yes,  the  deposit  money  of  the  bank;  and  consequently 
there  is  less  need  for  a  large  reserve  against  note  issues  than  there  is 
for  a  reserve  against  bank  deposits. 

The  Chairman.  The  theory  upon  which  our  banking  law  and  all 
sound  banking  proceeds  is  that  the  reserve  both  of  coin  and  of  bank 
balances  should  be  adjusted  to  the  deposits  and  not  to  the  currency. 
You  think  that  is  a  sound  system? 

Mr.  Eckels.  There  is  no  reserv^e  maintained  against  note  issues,  for 
the  reason  that  they  are  all  provided  for  by  the  deposits  of  bonds.  At 
the  outset  the  national-bank  act  did  provide  for  holding  a  reserve 
against  note  issues. 

POPULAR   IDEA   OF   A   BANK'S   SOLVENCY. 

The  Chairman.  Y'ou  have  introduced  an  issue  there.  The  bonds  do 
not  cut  any  figure  and  have  no  relation  to  the  currency  excepting  in  its 
final  redemption  u])on  the  solvency  of  the  bank.  Our  present  system 
goes  upon  the  theory  that  the  reserves  held  ought  to  be  adjusted  to  the 
individual  deposits  and  also  the  coin  held,  instead  of  to  the  currency 
issued. 

Mr.  Eckels.  They  cut  this  figure,  that  nobody  ever  thinks  about  a 
bank  note,  because  he  knows  that  as  long  as  the  credit  of  the  Govern- 
ment is  such  that  its  bonds  are  redeemed,  his  note  is  good. 

The  Chairman.  J5ut  in  the  i»opular  mind  the  thing  that  tests  a  bank's 
ability  to  redeem  is  the  currency  it  issues  and  not  the  deposits  it 
accepts.  Now,  as  a  matter  of  fact,  is  it  not  the  depositors,  and  not  the 
currency  holders,  that  demand  coin  redem])tion,  as  you  have  previously 
testified;  and  isn't  our  system  adjusted  ux^on  that  i)rinciple? 


FINANCIAL   AND   BANKING   SITUATION.  309 

Mr.  Eckels.  I  tliink  in  the  popular  mind  witli  us,  Mr.  Walker,  tli at 
which  tests  tlie  solviMicy  of  a  bank  is  its  ability  to  redeem  its  indebted- 
ness to  its  depositors — its  ability  to  meet  the  demands  of  the  depositors. 
Under  other  eirtaimstanees  technically  a  true  test  of  the  solvency  of  a 
note-issuinj;^  bank  is  its  ability  to  redeem  its  notes. 

The  CIIA1R3IAN.  Is  it  not  a  fact  that  in  a  business  community  the 
thing"  that  is  believed  to  test  the  solvency  of  a  bank,  with  those  familiar 
with  banks  and  banking-,  are  the  deposits  and  the  demand  that  the 
depositors  make  ui)on  a  bank;  but  in  the  i)opular  mind,  say,  the  average 
taxpayer,  the  thing  that  rests  in  his  mind,  as  a  matter  of  risk,  is  the 
currency  that  the  banks  issue?     Isn't  there  a  distinction? 

Mr.  Eckels.  I  do  not  think  in  the  United  States  or  any  country 
where  there  is  an  absolute  deposit  of  securities  that  there  is  any  thought 
at  all  devoted  to  the  redemption  f>f  the  note  issues. 

The  Chairman.  By  the  depositors  ? 

Mr.  Eckels.  By  the  noteholders.  They  look  to  the  Government. 
But  where,  as  1  say,  the  banks  maintain  the  responsibility  themselves 
of  redemption  of  their  note  issues  the  popular  mind  would  undoubtedly 
be  constantly  ou  the  lookout  as  to  whether  or  not  the  banks  were  able 
to  redeem  the  notes  issued. 

The  Chairman.  Is  it  not  a  fact  that  the  banks  are  required  to  put 
up  the  5  per  cent  redemption  fund,  and  that  the  banks  themselves, 
through  tiiat  fund,  currently  redeem  their  notes,  and  then  the  Govern- 
ment sells  the  bonds  to  redeem  the  notes  of  insolvent  banks? 

Mr.  Eckels.  That  is  the  fact. 

The  Chairman.  So  that  the  fact  that  theGovernment  finally  redeems 
the  note  does  not  cut  any  figure  with  the  bank,  because  that  is  a  final 
redemption,  and  the  5  per  cent  redemption  fund  is  hekl  and  used  for 
the  current  redemption. 

Mr.  Eckels.  I  think,  Mr.  Walker,  in  the  popular  mind  here  there  is 
not  a  single  thought  devoted  to  the  redemption  of  bank  notes,  either 
current  or  permanent,  by  the  man  ])ossessiug  them.  He  is  aware  of 
the  fact  that  the  Government  attends  to  that  part  of  it,  because  it  is 
provided  in  the  law  that  if  the  redemption  fund  is  not  maintained  a 
bank  without  being  notified  can  be  closed  up  and  the  Government  take 
possession  and  redeem  the  notes,  recouping  itself  from  the  bonds 
deposited  with  the  Treasurer. 

The  Chairman.  Isn't  it  true  that  the  larger  the  volume  of  business 
done  by  a  larger  number  of  individuals  in  the  same  territory  under  the 
same  system,  the  less  percentage  of  redemption  coin  is  ueeded? 

Mr.  Eckels.  Yes. 

Mr.  Hill.  I  understood  you  to  say,  Mr.  Eckels,  in  response  to  Mr. 
Walker's  question,  that  the  larger  the  country  the  less  coin  would  be 
required  for  redemption  purposes. 

The  Chairman.  The  less  percentage  of  coin. 

Mr.  Hill.  Yes;  the  less  percentage. 

Mr.  Eckels.  The  same  character  of  banking  facilities 

Mr.  Hill.  I  want  to  ask  you,  if  the  country  is  divided  into  redemp- 
tion districts,  wliere  will  be  the  greatest  demand  for  redemptions,  from 
withhi  the  redemption  district  in  which  the  bank  is  located  or  without  it? 

Mr.  Eckels.  1  think  without  it. 

Mr.  Hill.  Then  the  more  extensive  the  country  is  the  greater  the 
quantity  of  coin  required,  rather  than  a  less  quantity  ? 

Mr.  Eckels.  I  don't  think  so,  with  the  improvements  of  banking 
facilities  equally  distributed. 

Mr.  Hill.  Why  would  that  affect  the  case  at  all  ?    If  the  redemp- 


310  FINANCIAL    AND    BANKING    SITUATION. 

tions  that  are  to  come  to  banks,  that  are  called  for  by  the  banks,  are 
from  without  the  redemption  district,  why  is  it  not  true  that  the  greater 
the  territory  without  the  redemi)tion  district,  the  larger  will  be  the  calls  ? 

The  Chairman.  The  jjoint  is,  it  is  impossible  to  have  redemption 
territorial  districts  where  the  system  covers  a  given  territory.  You 
can  not  make  redemption  districts.  Banks  must  be  allowed  to  choose 
among  the  large  commercial  cities  the  city  in  which  they  will  redeem 
their  notes. 

Mr.  Hill.  1  don't  think  that  would  change  the  fact  at  all.  It  would 
seem  to  me  the  exact  reverse  is  true. 

REDEMPTION   UNDER   THE    SUFFOLK   SYSTEM. 

Mr.  Eckels.  I  don't  think,  Mr.  Hill,  that  under  the  Suffolk  system, 
as  the  number  of  banks  increased  and  the  territory  was  enlarged, 
there  was  a  corresponding  increase  in  the  amount  of  coin  used  for 
redemption. 

Mr.  Brosius.  Mr.  Comptroller,  is  it  not  a  fact  that  the  need  for  bank 
currency  in  any  country,  other  things  being  equal,  diminishes  in  exact 
ratio  to  the  extent  of  the  deposits  of  the  banks  of  that  country  f 

checks  create  a  currency. 

Mr.  Eckels.  Yes;  because  people,  if  they  become  bank  deiDositors, 
use  checks,  and  they  create  a  bank- deposit  currency. 

Mr.  Brosius.  They  create  a  currency  themselves. 

Mr.  Eckels.  Yes;  the  only  diflerence  being  that  the  bank-deposit 
currency  is  not  a  currency  wiiich  passes  rapidly  from  hand  to  hand,  as 
a  bank-note  currency  does.  For  that  reason,  it  does  not  in  all  instances 
take  the  place  of  a  bank-note  currency. 

Mr.  Brosius.  I  did  not  mean  to  imply  that  it  took  the  place  of  it  in 
the  sense  of  superseding  it.  I  only  meant  that  where  there  is  a  habit 
of  depositing  in  banks,  so  that  all  the  available  funds  in  a  community 
go  out  of  the  pockets  of  the  people  into  the  general  use  of  the  public, 
that  less  and  less  amounts  of  bank-note  currency  are  needed  in  such 
cases. 

Mr.  Eckels.  Yes;  that  is  so. 

]VIr.  Brosius  (continuing).  Because  all  the  funds  of  the  community 
are  utilized  for  public  uses.  Now,  let  me  ask  another  (luestion.  Is  it 
not  a  fact  that  with  the  i)rogress  of  the  evolution  of  banking  agencies 
and  facilities  the  habit  of  depositing  the  current  funds  of  counnunities 
in  banks  grows,  and  that  therefore  the  deposits  in  the  banks  of  the 
country  increase  from  year  to  year? 

Mr.  Eckels.  That  is  undoubtedly  true.  I  have  several  times  taken 
occasion  to  say  that  with  the  increase  of  facilities  of  exchange  through 
banks  of  depositaiid  discount  youdiminish  theuseof  bank-note  currency, 
and  also  of  gold  (-urrency  or  silver.  After  all,  bank  notes  and  gold  and 
silver  play  so  very  small  a  part  in  the  innumerable  transactions  in  the 
business  world  that  they  can  not  be  considered  to  compare  with  the 
other  methods  which  are  used  for  carrying  on  business. 

Mr.  Brosius.  Tliat  is  the  philosophy  of  it. 

Mr.  Eckels.  That  is  the  fact  of  it. 

DEMAND   FOR   ADDITIONAL   NOTE    CURRENCY   LOCATED. 

Mr.  Brosius.  Does  it  not  find  additional  illustration  in  the  fact  that 
in  those  sections  of  the  Union  in  which  there  exists  the  greatest  demand 


FINANCIAL    AND    BANKING    SITUATION.  311 

for  additional  bank-note  currency  there  is  the  least  amount  of  deposits 
in  the  banks? 

Mr.  Eckels.  Yes. 

j\rr.  Brosius.  In  tlie  cities  of  the  Xorth  and  in  the  Xorth  generally 
and  the  Middle  States,  where  capital  abounds  and  they  have  the  habit 
of  depositing',  they  are  not  deniauding  additional  bank-note  currency, 
are  they! 

Mr.  Eckels.  No. 

Mr.  Brosius.  In  the  South  and  West,  where  they  do  not  deposit  so 
generally,  and  where  there  is  a  dearth  of  deposits  in  the  banks  to  be 
used  for  public  purposes,  they  are  demanding  additional  bank-note 
currency  I 

Mr.  Eckels.  Yes. 

JVIr.  Fowler.  Is  it  a  proof  that  they  have  no  wealth? 

Mr.  Brosius.  No. 

Mr.  Eckels.  The  desire  for  an  inflation  of  the  currency  is  not  con- 
fined to  any  single  locality  or  any  single  class  of  iieople.  There  has 
always  been  everywhere  a  desire  to  have  a  large  volume  of  currency, 
but  the  needs  of  the  South  and  the  West  for  better  note-issuing  func- 
tions on  the  part  of  the  banks  are  greater  than  in  the  East  and  the 
Middle  West  and  the  New  P^ngland  States. 

The  Chairman.  Is  it  not  true  that  where  the  banks  issue  currency 
freely  where  they  are  located  the  currency  carried  in  the  pockets  of 
the  i)eople  there  actually  increases,  while  being  a  less  percentage  to 
the  total  banking  capital — that  is  to  say,  that  the  percentage  of  cur- 
rency to  the  deposits  and  to  the  banking  capital  may  be  less,  while  the 
total  currency  in  circulation  may  be  more,  because  loans  are  made  in 
currency? 

Mr.  Eckels.  Yes. 

The  Chairman.  Now,  Mr.  Eckels,  preparatory  to  taking  up  the  bill 
H.  E.  171,  if  you  will  turn  to  page  98  of*  your  report 

EFFECT   OF   REDEEMING   IN   OOLD    ONLY. 

Mr.  Cox.  Before  you  take  up  the  regular  bill  I  wanl^  to  ask  Mr.  Eckels 
one  question.  Mr.  Eckels,  I  want  to  go  back  and  call  attention  to  a  ques- 
tion we  were  discussing  yesterday  and  try  to  make  tlie question  under- 
stood. When  you  were  speaking  of  the  redemption  by  the  banks  and 
taking  it  oft'  of  the  (iovernment,  and  that  they  should  redeem  in  gold, 
a  question  drawn  (»ut  by  my  friend  there,  to  a  certain  extent,  was  the 
thought  that  if  the  gold  was  needed  in  this  country  the  banks  could 
get  it,  and  if  it  was  needed  in  other  places  and  we  had  a  surplus  it  would 
flow  to  them  ? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  Now,  suppose  the  banks  had  to  redeem  in  gold,  and  gold 
only,  and  there  was  at  a  time  a  demand  for  a  considerable  sum  of  gold 
out  of  this  country.  By  your  answer  it  would  naturally  take  its  course 
to  fill  up  w^hat  you  i^iight  call  a  vacuum  there.  Now,  would  not  there 
be  a  danger  that  gold  might  go  to  a  slight  premium,  or  a  considerable 
premium,  and  if  it  did  go  to  a  premium,  even  a  small  one,  would  not 
that  be  an  invitation  and  would  not  it  have  the  influence  to  rush  the 
depositors  into  the  banks  for  the  redemption  in  gold,  so  that  they 
would  get  the  profit  of  that  premium? 

Mr.  Eckels.  Of  course  there  is  always  the  liability  of  having  a  con- 
dition of  the  public  mind  that  may  upset  the  best  system,  but  this 
thing  is  certain,  that  wherever  the  respousibilily  has  been  placed  on 


312  FINANCIAL    AND    BANKING    SITUATION. 

banks  of  looking  after  these  matters,  unbampered  by  unnecessary  (Jov- 
ernment  restriction,  they  have  been  able  to  do  it.     As  they  have  all 
the  machinery,  they  nndoubtedly  wonld  protect  themselves. 
Mr.  Cox.  Bnt  you  admit  that  there  is  some  danger  along  that  line? 

DISTURBANCES    POSSIBLE    UNDER    THE    BEST    SYSTEM. 

Mr.  Eckels.  Under  the  very  best  system  possible  there  is  ai)t  to  be 
a  condition  of  the  public  mind  which  for  the  time  may  create  distnrb- 
ances. 

Mr.  Beosius.  Conld  gold  go  to  a  premium  under  auy  circumstances 
as  long  as  banks  continue  redeeming  in  gold? 

Mr.  Eckels.  No;  the  banks  themselves  might  have  to  pay  it. 

Mr.  Brosius.  It  does  not  make  any  difference  what  the  banks  have 
to  pay  for  it,  because  any  man  taking  his  note  to  the  banks  can  get 
gold  for  it,  and  as  long  as  tliat  is  the  case  gold  will  not  go  to  a  premium. 

Mr.  Cox.  But  the  question  lies  in  the  fact  that  the  banks  have  to  pay 
a  premium  for  the  gold. 

Mr.  Eckels.  They  would  probably  have  to  pay  a  higher  price  for  it. 

Mr.  Cox.  But  the  apprehension  in  my  mind  is  that  the  depositor 
would  rush  for  the  gold  if  it  was  at  a  premium. 

Mr.  Eckels.  They  would  not,  however,  buy  the  gold  back  from  the 
depositors.     The  depositor  who  would  take  that  gold  would  hoard  it. 

The  Chairman.  We  will  now  take  up  my  bill  H.  R.  171,  but  before 
we  proceed  to  that  I  will  ask  you  to  turn  to  page  100  of  your  report  for 
1896.  The  nine  recommendations  therein  made  by  the  Comj^troUer  are 
as  follows: 

SUGGESTED   AMENDMENTS   OF   THE   BANK   ACT. 

[Annual  Rejiort  of  the  Comptroller  of  the  Currency,  1896.] 
• 

It  is  one  of  the  duties  imposed  by  law  upon  the  Comptroller  of  the  Currency  that 
je  shall,  in  his  annual  report  to  Congress,  iudii'ate  such  amendments  to  the  bank  act 
as  woukliii  his  judgment  im])rove  the  national-banking  system.  In  discharge  of  that 
duty,  I  submit  lor  cousnleration  the  following  suggestions,  which  it  is  believed,  if 
embodied  into  law,  would  be  of  material  i)ub]ic  benefit: 

First.  That  the  loans  and  discounts  of  any  bank  to  its  executive  oflicers  and 
employees  be  restricted  in  amount,  secured  by  ])roper  collateral  or  by  additional 
signature  or  signatures  of  financially  responsible  persons  to  the  notes  taken,  and 
made  only  upon  the  approval  of  the  board  of  directors,  a  written  record  thereof 
being  kept. 

Second.  That  no  loan  shall  bo  made  to  a  director  who  is  not  an  executive  officer 
of  the  bank,  except  either  upon  a  dei)Osifc  of  collateral  security  or  upon  a  note  given 
therefor  Ijcaring,  in  addition  to  the  director's  own  signature,  the  signature  or  signa- 
tures of  one  or  nnue  financially  responsible  person  or  persons. 

Third.  That  upon  a  day  in  each  year,  to  be  designated  by  th(>  Comptroller,  the 
directors  of  nationiil  banks  shall  l)e  required  to  make  an  examination  of  the  affairs 
of  the  bank  -with  which  connected  and  submit  to  the  Comptroller  of  the  Currency  a 
re])ort  thfircon  upon  blanks  to  be  furnished  for  such  purpose. 

Fourth.  That  the  assistant  cashier,  in  the  absence  or  because  of  tlie  disability  of 
the  cashier,  be  authorized  to  sign  tlie  circulating  notes  and  to  sign  and  make  oath  or 
affirmation  to  reports  of  condition  of  a  national  bank. 

Fifth.  That  some  class  of  public  officers  be  empowered  to  administer  the  general 
oaths  required  to  be  taken  by  the  national-bank  act. 

Sixth.  That  in  places  having  a  population  of  less  than  2,000  inhabitants  national 
banks  shall  be  permitted,  uiidei'  regnlati(ms  to  be  made  by  the  Comptroller  of  the 
Currency  and  apiirove<l  by  the  Secretary  of  the  Treasury,  to  be  organized  with  a 
capital  stock  of  not  less  than  $25,000,  and  with  a  corresponding  reduction  in  the 
amount  of  bonds  ic(|uired  to  be  deposited  with  the  Treasurer  of  the  United  States. 

Seventh.  That  nafional  l)auks  be  permitted,  under  such  regulations  and  restrictions 
as  shall  be  made  by  the  ('omi)troller  of  the  Currency,  andapi)roved  by  the  Secretary  of 
the  Treasury,  to  establish  branch  banks  iu  towns  and  villages  where  no  national 


FINANCIAL    AND    BANKING    SITUATION.  313 

bauk  is  establisliod  and  wlioro  th(<  population  does  not  cxcood  1,000  inliiibitauts, 
such  branch  baulv.s  to  havo  the  rij;ht  to  receivo  deposits,  inakci  h)ans  and  dis^'ounts, 
and  buy  and  soil  cxcliango,  but  in  no  case  to  bo  perniitte<l  to  issin^  ciniiliitin;;'  notes 
other  than  that  of  the  ]iai(!nt  bank.  It  shall  in  all  respccsts  1x5  considered  as  a  ])arfc 
of  the  parent  bank,  and  in  each  case  where  such  branches  aro  niaintaineil  the 
Comptroller  shall  receive  in  the  reports  of  the  central  bank  a  statement  i)ro|)erly 
sworn  to  and  attested  of  the  condition  of  its  branches,  lie  shall  also  have  the 
right  of  separate  and  indejjendent  examinations,  and  he  may,  wheno\  cr  ha  deems  it 
necessary,  require,  liefoi'o  grantini^  the  riglit  to  aiiy  bank  to  maintain  branches,  that 
the  paid-up  eai)ital  stock  of  such  bank  be  increased  to  an  amount  to  be  lixed  by  him 
with  the  ajijiroval  of  the  Secretary  of  the  Treasury. 

Eighth.  That  the  semiannual  tax  levied  on  account  of  the  eirculating  notes  of 
national  banks  be  reduced  so  as  to  eciual  but  one-fourth  of  1  jier  cent. 

Ninth.  That  the  Comptroller  of  the  Currency  be  authorized  to  issue  to  national- 
banking  associations  circulating  notes  to  the  ])ar  value  of  the  bonds,  when  the  mar- 
ket value  thereof  is  ec^ual  to  the  par  value,  deposited  by  them  with  the  Treasurer  of 
the  United  States  to  secure  such  notes. 

The  Chairman.  T  wish  to  ask  the  Comptroller  whether  if  every 
recoiiimeiidatioTi  he  therein  makes  was  heeded  by  Congress  and  the 
recommendations  enacted  into  a  law,  if  that  would  relieve  the  condi- 
tion of  the  embarrassment  of  the  Treasury  at  all? 

PURPOSE   OF   THE   COMPTROLLER'S  RECOMMENDATIONS. 

Mr.  Eckels.  I  think  I  have  rei>eatedly  stated,  Mr.  Walker,  that  a 
banking  bill  that  did  not  get  rid  of  the  demand  obligations  of  the  Gov- 
ernment would  not  relieve  the  immediate  necessities  of  the  Treasury 
Department,  but  these  recommendations,  some  of  which  are  designed  to 
improve  the  administrative  method  of  banking,  and  others  to  increase 
banking  facilities,  would  improve  the  general  conditions  of  the 

The  Chairman.  Existing  conditions? 

Mr.  Eckels  (continuing).  The  general  conditions  of  tlie  business 
interests  of  the  people.  But  even  with  these  there  would  always  be 
the  danger  of  recurring  periods  of  embarrassment  by  the  unrelieved 
condition  of  the  Treasury  in  not  having  its  demand  obligations  can- 
celed. 

The  Chairman.  Then  the  point  of  the  recommendations  is  to  improve 
and  benefit  tlie  existing  system  without  specially  relieving  the  Treasury 
situation. 

Mr.  Eckels.  As  already  stated  by  me,  they  would  improve  existing 
conditions  of  banking,  and  thus  they  might  to  a  small  extent  relieve 
the  Treasury.  They  would  not,  however,  give  it  tlie  relief  that  it  ought 
to  have.  I  believe  they  would  add  immensely  to  the  general  benefit  of 
the  ])eople.  If  they  did  not  appear  to  me  of  such  benefit  I  would  not 
have  suggested  them. 

The  Chairman.  That  is  the  point  I  wanted  to  bring  out.  Well,  that 
would  be  a  benefit  to  the  jieople.  Now,  if  you  will  turn  to  i)age  17  of 
myargument  niadeon  February  17, 1890, in  support  of  bill  H.  li.  171 

Mr.  Eckels.  ]>efore  you  do  that,  Mr.  Walker,  I  wish  to  say  that  in 
this  same  report  I  discussed,  in  connection  with  these  matters,  the 
absolute  necessity  of  the  Government  getting  rid  of  its  demand  obliga- 
tions in  order  to  grant  the  total  relief  to  which  I  think  the  people  are 
entitled.  I  do  not  wish  to  be  put  in  the  attitude  of  making  recom- 
mendations which  I  think  could  be  of  no  benefit.  They  are  recom- 
mendations which  are  designed  to  accomi)lish  the  best  thing  possible 
to  relieve  the  banking  situation.  Whether  or  not  the  legal  tenders  are 
retired,  these  recommendations  would  be  of  benefit. 


314  FINANCIAL    AND    BANKING    SITUATION. 


BILL   H.    E.   171. 

The  Chairman.  That  is  what  I  wanted  to  bring*  out.  That  is  to  say, 
it  would  not  relieve  the  Treasury  situation,  l)ut  would  improve  the 
banking  situation.  Xow,  if  you  will  turn  to  page  17  of  the  argument 
you  will  please  take  up  item  1.  You  have  examined  the  five  bills 
referred  to  this  committee  and  drawn  by  Mr.  Walker,  Mr.  Brosius,  Mr. 
Hill,  jMr.  Cox,  and  Mr.  Fowler,  respectively? 

Mr.  Eckels.  Yes;  I  have  given  them  such  examination  as  I  could. 

The  Chairman.  My  first  statement  is  as  follows : 

Tho  Walker  bill  makes  not  the  slightest  change  in  the  existing  conditions  as  to 
gold  coinage  or  silver  coinage  or  the  use  of  gold  or  silver,  legal-tender  notes,  Treas- 
ury notes,  or  any  other  form  of  paper  money,  anj'  further  than  is  necessary  to  relieve 
the  Treasury  of  the  United  States  from  being  in  any  way  responsible  for  the  current 
redemption  of  any  form  of  p;iper  money.  It  provides  a  surer  and  safer  method  lor 
the  current  redemption  and  also  the  linalre<lemptiou  of  such  notes  than  under  exist- 
ing laws. 

Is  not  that  true? 

Mr.  Eckels.  In  answer  to  that  x  would  state  that  the  redemption  by 
the  banks,  with  the  responsibility  placed  upon  the  banks,  would  be  a 
great  deal  better,  everything  considered.  It  would  relieve  the  Treas- 
ury Department  to  a  greater  extent  of  the  present  burden  which  these 
redemptions  place  upon  it. 

Mr.  Spalding.  Would  it  be  a  surer  and  safer  method '!  That  is  the 
question. 

Mr.  Eckels.  Yes,  I  believe  that  at  a  critical  time  it  would  be  a  surer 
method  because  of  the  fact  that  the  banks  have  the  machinery  which 
the  Government  has  not. 

The  Chairman.  That  is  the  true  test;  is  it  not?  The  actual  doing 
and  proved  result  is  the  test  of  anything. 

Mr.  Eckels.  Yes;  and  for  the  reason  that  you  would  not  have  every- 
one continually  measuring  his  operations  by  the  fact  that  the  Ceneral 
Treasury  had  lost  a  million  dollars  of  gold  or  had  gained  a  million  dol- 
lars of  gold. 

The  CHAiR:\rAN.  Is  it  not  a  fact  that  if  the  banks  lost  a  million  dol- 
lars of  gold  it  would  be  simply  the  gold  going'  out  from  an  individual 
bank  into  another  bank  where,  if  the  Treasury  loses,  it  is  a  final  loss  to 
the  Treasury  system  of  redemption? 

Mr.  Eckels.  Everyone  would  not  know  when  the  banks  had  lost 
a  million  dollars,  whereas  as  it  is  now,  whenever  the  Treasury  loses  a 
milliou  doljars  in  gold  everybody  knows  it. 

suspension  in  the  panic  of  1893. 

Mr.  Spalding.  I  would  like  to  ask  the  Com])troller,  if  it  is  not  a 
fact  that  the  banks  all  suspended  during  1893,  and  refused  to  pay  cur- 
rency over  their  counters? 

Mr.  Eckels.  No. 

Mr.  Spalding.  A  large  majority  of  them  did. 

Mr.  Eckels.  They  gave  the  equivalent,  which  was  rjlpidly  redeemed 
when  needed,  something  the  Covernment  could  not  have  done  without 
issuing  bonds. 

Mr,  Spalding.  And  supi^osed  to  be  in  violation  of  law  by  so  doing. 


FINANCIAL   AND   BANKING   SITUATION.  315 


NOT    A   VIOLATION    OF    LAW. 

Mr.  EdKELi^,  T  do  not  think  it  is  a  violation  of  law.  But  that  was 
an  illustration  of  the  very  thin-;-  I  am  trying;-  to  brinj;'  out.  The  bnnks 
have  the  machinery  which,  witliout  enactment  of  law,  enables  them, 
even  at  as  critical  time  as  in  ISD.'i,  to  protect  tliemselves  and  to  prevent 
not  only  bankruptcy  to  tliemselves  but  <;eneral  bankruptcy.  The  Gov- 
ernment could  not  protect  itself  except  by  issuing  bonds,  which  is  not 
a  very  popular  thing-,  and  can  not  be  done  rapidly,  except  by  a  syndi- 
cate contract. 

Mr.  Spalding.  When  the  bank  refuses  to  pay  currency  on  a  check 
of  its  current  depositor,  and  the  money  is  there  to  the  credit  of  the 
depositor,  is  not  that  an  act  of  insolvency  under  the  national  banking 
law? 

Mr.  Eckels.  I  suppose  it  might  be  construed  as  an  act  of  insolvency. 

Mr.  Spalding.  Isn't  it  a  fact  that  the  national  banks  in  1893  and 
189i  did  so  refuse  ? 

clearing-house  payments  of  1803. 

Mr,  Eckels.  IsTo;  a  majority  of  them  did  not.  So  far  as  New  York 
City  was  concerned  they  made  everything  payable  through  the  clearing 
house. 

Mr.  Spaldtng.  Through  the  clearing  house  only,  and  there  was  no 
currency  paid  by  the  banks  ' 

Mr.  Eckels  (continuing).  And  it  was  a  very  wise  measure. 

Mr.  Spalding.  I  am  not  discussing  the  wisdom  of  the  measure.  I 
am  discussing  the  actual  fact  that  did  occur. 

Isn't  it  a  fact  that  the  Gov(^rnment,  in  its  redemption,  was  more  sure 
and  more  certain,  and  that  the  only  redemption  we  had,  and  the  only 
money  we  could  get  was  largely  from  the  Government;  in  payment  of 
anything  we  could  get  currency  from  the  Government,  and  that  is  the 
only  way  you  could  get  currency.  I  was  running  a  bank  at  that  time 
and  know  something  about  it. 

Mr.  Eckels.  But  the  popular  suspicion  that  the  Government  was  not 
going  to  be  able  to  do  that 

Mr.  Spalding.  I  am  not  talking  about  the  popular  suspicion. 

Mr.  Eckels  (continuing).  Created  the  condition  of  affairs  witnessed. 
If  the  Government  had  been  out  of  tlie  banking  business  there  would 
not  have  been  seen  the  financial  difficulty  of  181K3. 

Mr.  Spalding.  Isn't  it  true  that  in  1895  and  189G  the  banks  of  Phila- 
delphia suspended  payments  largely,  and  refused  to  pay  currency  and 
did  not  have  the  currency? 

Mr.  Eckels.  Some  banks  may  have  suspended  such  payments,  but 
not  largely  so.  Certainly  no  complaint  ever  reached  me  to  such  effect. 
Again,  there  was  a  condition  wliere  bonds  had  to  be  issued  and  the 
Treasury  was  in  danger  of  default  in  its  redemptions  in  gold  of  its 
demand  obligations. 

Mr.  Spalding.  I  was  actively  in  the  banking  business  at  that  time 
and  I  do  not  know  of  but  one  or  two  banks  in  the  United  States  at 
that  time  that  did  not  refuse  positively  to  pay  currency  over  their 
counters. 

Mr.  Eckels.  There  was  not  a  bank  in  Chicago  that  did  not  pay  cur- 
rency when  demanded.    You  are  mistaken  about  that  Mr.  Spalding. 


316  FINANCIAL   AND   BANKING   SITUATION. 

comptroller's  opinion  of  h.  r.  171. 

The  Chairman.  Now,  Mr.  Eckels,  will  yon  please  take  np  tlie  20 
statements  made  commeudiiig  my  bill.  I  want  your  oi)inion  as  an 
expert.  Yon  liaving  examined  all  tlie  bills,  I  wish  yon  to  go  throngh 
those  statements  as  to  the  effect  of  the  bill  when  enacted  into  law  and 
say  whether,  in  your  judgment,  they  are  lair  statements  or  not.  If  you 
will  read  them  in  order  it  will  save  interruptions,  and  we  will  ask  ques- 
tions after  you  get  tlirough. 

Mr.  Eckels.  That  is  placing  a  pretty  difficult  task  npon  me.  I  think 
you  should  take  the  statements  and  ask  me  to  give  my  views  on  such 
points  as  you  desire. 

The  Chairman.  I  would  prefer  to  do  that.  On  motion  passed  by 
the  committee  it  was  decided  that  the  cliairman  should  ask  the  Comp- 
troller's views  on  such  sections  of  the  bill  H.  K.  171  as  he  (the  chair- 
man) desired,  without  interruptions  from  the  other  members  of  the 
committee,  and  that  after  the  different  sections  of  this  bill  had  been 
gone  tlirough  with  and  the  chairman  had  finished  his  questions,  that 
the  other  members  of  the  committee  would  be  given  an  opportunity  to 
interrogate  the  Comptroller  or  speak  npon  the  bill  m  question. 

Please  give  your  opinion  of  the  20  propositions  I  lay  down,  beginning 
on  page  17  of  my  argument,  commencing  at  the  first  one. 

Mr.  Eckels.  We  have  taken  up  the  first  of  your  statements. 

original  purpose  of  the  jstational-ba-nk  act. 

The  second  statement  is  as  follows: 

It  makes  uo  change  lu  the  existing  banking  system  otlier  than  to  cuhirge  and  per- 
fect it  in  accordance  with  its  original  purpose. 

That  is  a  pretty  broad  assertion,  but  it  is  evidently  the  design  of  the 
bill  to  enlarge  the  cir(!ulation  feature  of  the  bank  act.  The  original 
purpose  of  the  bank  act  was  to  provide  circulating  notes,  which  feature 
of  banking,  instead  of  being  the  principal  thing  with  the  national  banks, 
is  now  only  the  incident.  It  has  been  given  up  because  of  a  want  of 
profit  oy  circulating  notes.  The  jn'ofit  of  banking  to-day  is  found  with 
the  national  banks  to  bo  almost  entirely  in  its  deposit  feature.  The 
basis  of  this  bill  seems  to  be  to  develop  that  original  feature  in  the  act, 
and  if  your  estimates  of  profits  through  the  provision  of  your  bill  are 
correct,  that  feature  of  national  banking  would  again  be  developed,  pro- 
vided that  the  bill  as  a  whole  is  acceptable  to  the  banking  interests. 

As  I  stated  yesterday,  and  I  think  you  agree  with  me,  Mr.  Walker, 
the  banking  interests  of  the  country  must  have  it  shown  to  them  that 
this  bill  Avill  ac(*()m])]ish  these  things  before  they  will  accept  it. 

RIDIJINO   the   treasury    OF   CURRENT   REDEMPTION. 

The  third  statement  you  make  is  as  follows : 

While  dispensing  with  the  formal  bonds  for  taking  ont  currency,  it  supplies  their 
place  with  a  currency  that  is  the  equivalent  of  small  noniutercst-bcariug  bonds 
instantly  payable  u])on  presentation. 

That,  I  take  it,  is  the  substituting  for  bond  securities  legal  tenders  in 
currency.  You  provide  in  your  bill  for  getting  the  Government  rid  of 
the  current  redeiii])tion  of  legal  tenders,  and  in  that  way  for  funding, 
practically,  of  the  present  Treasury  issues.  I  believe  that  is  a  feature 
of  Mr.  Cox's  bill,  and  also,  to  some  extent,  of  Mr.  Fowler's  bill.  Am  I 
not  right  about  itf 


FINANCIAL    AND    BANKING    SITUATION.  317 

Mr.  FowLKK.  Ho  far  as  the  surplus  amouut  of  money  iu  the  Treasury- 
is  coiicerned. 

Mr.  Cox.  I  do  not  understand  from  your  statement,  and  I  do  not 
think  tlie  committee  understands,  how  it  is  that  Mr.  Walker's  bill  pro- 
vides for  getting-  rid  of  the  greenbacks.  On  page  9  of  the  bill,  section 
8 provides  "that  the  Secretary  of  the  Treasury  is  heieby  authorized  to 
issue  United  States  legal-tender  notes  described  in  section  3  of  the  act 
of  March  3,  1803,  in  the  manner  described  in  section  (J,  to  the  amount 
necessary  to  carry  into  eflect  the  provisions  of  this  act."  Now,  I  don't 
understand  that,  and  1  don't  think  your  attention,  JMr.  Comptroller, 
was  called  particularly  to  this. 

Mr.  Eckels.  My  understanding  is  that  Mr.  Walker's  bill  provides 
that  when  a  bank  is  chartered,  it  shall  to  a  percentage  specitied,  for 
taking  out  lawful  money  of  the  (loverumeut,  de])osit  gold,  silvei',  green- 
backs, and  other  things.  The  bill  you  have  introduced  provides  that 
the  bank  shall  deposit  legal  tenders  also.  The  section  to  which  you 
refer  would  be  resorted  to  only  when  the  present  issue  of  demand  obli- 
gations had  been  exhausted  by  the  banks  in  their  deposit  as  required. 
In  case  other  banks  Avere  organized  and  there  were  no  legal  tenders  not 
absorbed  the  Secretary  would  recur  to  the  issues  of  other  legal  tenders. 

Mr.  Cox.  Under  the  bill  1  introduced  they  take  charge  of  certain  of 
those  demand  notes.  I  understood  this  bill  tended  iu  the  same  direc- 
tion.    I  was  trying  to  get  at  what  was  the  difference  between  them. 

Mr.  Eckels.  That  is  the  point  I  tried  to  make  when  I  said  the  pro- 
visions of  this  bill,  n.  E.  171,  were  not  different  from  yours  to  a  cer- 
tain extent,  that  extent  being  the  deposit  of  present  outstanding  legal 
tenders  by  the  banks  to  secure  circulation. 

ISSUING  NOTES   AGAINST  ASSETS. 

The  fourth  statement  Mr.  Walker  makes  is  as  follows : 

It  makes  sure  to  banks  the  le<i;itimate  profit  on  the  cui'rency  they  take  out  in  10 
per  cent  localities  and  iu  4  ]ier  cent  localities,  and  iu  all  other  localities  ])roportiou- 
ately  profitable  to  the  banks  iu  each  locality. 

That,  1  suppose,  is  caused  by  the  fact  that  you  would  permit  them  to 
issue  notes  against  their  assets  to  the  amount  of  the  reserves  held  by 
them. 

The  Chairman.  Against  their  assets? 

Mr.  ^Eckels.  Their  assets,  as  measured  by  the  reserve. 

The  Chairman.  Yes;  ultimately  limited  by  the  reserve  held.  That 
is  to  say,  10  per  cent  localities  would  be  entitled  to  make  10  per  cent 
on  the  currency  they  had  out,  and  now  they  can  not  make  anything 
under  the  bond  system. 

CURRENT  REDEMPTION  PUT  UPON  THE  BANKS. 

Mr.  Eckels.  Your  fifth  statement  is  as  follows: 

Under  the  jiresent  law  there  is  no  conceivable  way  of  preventing  any  individual, 
Hebrew  or  Christian,  from  taking  out  of  the  Treasury,  without  the  slightest 
hindrance,  just  as  much  of  gold  as  he  can  secure  of  greenbacks,  to  hoard  or  ship  out 
of  the  country,  and  iu  disobedience  of  economic  law.  Under  the  proposed  bill  there 
is  no  conceivable  way  gold  can  be  shipped  out  of  the  country  in  disobedience  of 
economic  law. 

I  do  not  think  the-re  is  any  doubt  about  that  statement.  Under  the 
provision  of  the  bill,  which  takes  the  demand  obligations  of  the  Gov- 
ernment out  of  the  way  of  current  redemption  by  the  Government  and 


318  FINANCIAL    AND    BANKING    SITUATION. 

places  the  responsibility  therefor  upou  the  banks,  if  successfully  car- 
ried out,  there  would  be  a  complete  p,uarantee  against  the  Treasury 
being  subjected  to  the  continual  maintenance  of  a  gold  reserve  against 
these  notes.  It  -would  not  be  constantly  in  danger  of  a  run,  because, 
under  the  provision  of  the  bill,  you  design  to  have  the  banks  assume 
these  obligations,  and  in  tliis  manner  place  them  beyond  the  reach  of 
being  i^resented  to  the  Treasury  for  redemption. 

COST   OF   CURRENCY   AND   RATES   OF   INTEREST. 

Your  sixth  statement  is  as  follows: 

Under  the  preseut  law  tlie  cost  of  curreucy  to  banks,  and  consequent  rates  of 
interest  to  the  people,  is  less  and  less  in  proportion  as  interest  is  low  and  growing- 
lower. 

Under  the  proposed  hill  the  profit  on  currency  is  more  and  more  as  interest  rates 
increase,  and  the  profits  grow  less  to  banks  on  the  currency  as  interest  decreases. 
This  tends  to  depreciate  interest  rates. 

I  would  like  to  have  you  restate  that  provision,  so  that  I  can  exactly 
understand  the  way  in  which  the  object  you  seek  to  reach  cau  be 
obtained. 

The  Chairman.  Under  the  present  law  the  cost  of  currency  to  banks, 
and  the  consequent  rate  of  interest  to  the  people,  is  less  and  less  in 
proportion  as  interest  is  low  and  growing  lower.  That  is  proved  by 
the  fact  that  on  the  bonds  sold  February  1,  1895,  at  only  104,5  and 
issuing  currency  in  a  1  per  cent  locality,  they  could  only  make  2  per 
cent,  or  make  1.71  i)er  cent  in  a  0  per  cent  localitj^,  or  1.35  \iev  cent  in 
an  8  per  cent  locality,  and  .98  per  cent  in  a  10  per  cent  locality  on  the 
currency  issued. 

When  the  credit  of  the  Government  is  normally  good,  and  the  bonds 
sell  at  j)rices  paying  the  purchaser  lii  x>er  cent,  or  at  130.8749,  the  protit 
to  banks  on  this  currency  would  be  as  follows: 

In  4  per  cent  localities  the  i)rofit  would  be  43.99  per  cent  more  than 
in  6  per  cent  localities. 

Under  the  Walker  bill  it  would  be  50.47  per  cent  less  in  4  per  cent 
localities  than  in  G  per  cent  localities. 

In  4  per  cent  localities  the  profit  would  be  174.35  per  cent  more  than 
in  8  per  cent  localities. 

Under  the  Walker  bill  it  would  be  10G.95  per  cent  less  in  4  i)er  cent 
localities  than  in  8  per  cent  localities. 

In  4  ])er  cent  localities  the  prolit  would  be  0555.55  per  cent  more  than 
in  10  i)er  cent  localities. 

Under  the  Walker  bill  it  would  be  100.42  per  cent  less  in  4  i)er  cent 
localities  than  in  10  per  cent  localities. 

That  is,  under  the  present  system  currency  costs  more  and  more  to 
the  banks  as  they  take  it  out  where  interest  is  higher  and  less  and  less 
to  the  bank  where  interest  is  low,  and  that  is  i)roved  by  the  actuary's 
figures  1  have  given  you.  Under  the  proposed  bill  the  prolit  on  the 
currency  is  more  and  more  as  interest  rates  increase,  and  the  i)rofits  to 
banks  grow  less  as  interest  decreases. 

PROFITS  ON  CURRENCY  VARY  DAY  BY  DAY. 

Mr.  Eckels.  Your  seventh  statement  is  as  follows: 

Under  the  present  law  ])rolits  on  currency  vary  every  <hiy  in  the  year  at  the  same 
rates  on  loans  and  <lisc«)unts. 
Under  the  proposed  bill  the  jtrolits  on  currency  arc  the  same  every  day  in  the  year. 


FINANCIAL    AND    BANKING    SITUATION.  319 

Your  statement  is  correct — that  the  profits  on  currency  vary  from 
day  to  day  with  the  variations  in  the  prices  of  bonds. 
Your  eighth  statement  is  as  follows : 

PLACE    OF   REDEMPTION. 

Under  the  present  ]aw  practically  every  dollar  of  the  $1,000,000,000  of  our  cur- 
rency notes  is  redeemalde  in  g'^hl  at  tlie  United  States  Treasury. 

Under  the  proposed  1)111  not  a  dollar  of  currency  notes  of  any  kind  will  be  redeem- 
able at  the  United  States  Treasury.  It  Avill  give,  practically,  iinal  gold  redemption 
at  the  national  clearing-house  in  New  York  and  redemption  in  legal-tender  notes 
and  silver  at  country  banks. 

I  think  we  agree  that,  as  a  matter  of  fact,  under  the  provisions  of  the 
United  tStates  statute  which  says  that  the  Government  shall  maintain 
the  parity  between  the  moneys,  every  dollar  of  the  81,00(),0()(),00()  or 
more  of  credit  currency  which  is  outstanding  is  based  npon  gold  aud 
redeemable  in  gold  if  so  desired  by  the  holders  of  it.  Under  your  bill 
you  propose  the  banks  shall  assume  it. 

Mr.  Hill.  No. 

Mr.  Eckels.  Except  in  the  last  analysis? 

Mr.  Hill.  It  i)rovides  for  current  redemption  at  the  United  States 
Treasury. 

The  Chaieman.  I  beg  your  pardon.  Xot  unless  the  Comptroller 
prefers  it  to  be  done  there. 

Mr.  Eckels.  I  maj^  be  mistaken,  but,  as  I  understand  it,  Mr.  Walker's 
design  is  to  place  the  current  redemption  upon  the  l)anks.  But  the 
ultimate  redemption,  if  that  point  should  be  reached,  is  upon  the  Gov- 
ernment through  its  guaranty,  which  amounts  to  a  bond. 

safety  PROVISIONS. 

Your  ninth  statement  is  as  follows: 

Under  the  present  law  the  money  of  the  people  is  made  safe  by  banks  being  obliged 
to  deliver  to  the  Treasurer  of  the  United  States  an  amount  of  capital  e(|ual  to  the 
amount  of  their  currency  notes  when  th-ey  commence  business. 

Under  the  proposed  bill  they  will  deliver  the  same  amount  of  capital  when  they 
close  business.  Under  both  systems  the  Government  guarantees  every  dollar  of  the 
paper  money  in  circulation  and  at  no  cost  to  the  Government.  (See  p.  6U3,  Report 
of  Comptroller  of  Currency,  1895;  also  see  App.  L.,  p.  56  [of  this  volume].) 

That  is  simply  a  provision  of  your  bill  as  against  a  i)rovision  of  the 
national-bank  act. 

The  Chairman.  The  statement  is  correct. 

Mr.  Eckles.  It  is  correct  as  to  what  you  proi30se  to  do. 

The  Chairman.  Is  it  not  correct  that  the  bill,  if  it  were  enacted  into 
law,  w^ould  do  that? 

Mr.  Eckels.  Yes;  because  the  bill  provides  that  there  shall  be 
security.  You  propose  under  your  bill  that  there  shall  be  a  certain 
percentage  of  security  in  the  way  of  the  demand  obligations,  and  that 
there  shall  be  in  addition  liens,  etc.,  upon  the  assets,  backed  by  the 
guaranty  of  the  Government  for  unlimited  redemption.  This  certainly 
would  make  the  note  holder  safe.  As  to  the  provision  for  the  banks 
depositing  the  security  on  the  amounts  issued  against  the  assets  of  the 
bank,  the  only  difference  in  effect  between  your  ])roposition  and  the 
Ijresent  law  would  be  that  possibly  the  note  holder  and  the  depositor — 
unless  you  have  a  great  many  safeguards — may  think  it  is  better  to 
have  the  de])osit  made  before  the  bank  commences  business  than  to 
have  it  made  when  it  winds  u[).  But  in  regard  to  this  feature  of  this 
billj  I  suppose  it  ought  to  be  remembered  that  while  you  are  against 


320  FINANCIAL    AND    BANKING    SITUATION. 

boud  securities,  you  undertake  to  liave  virtually  the  same  security  by 
making'  the  Goveruuieut  guarantor.  The  only  difference  is  that  it 
relieves  the  Government  of  this  current  redemption,  which  is  the  great 
source  of  its  difQcuIty,  and  at  the  same  time  it  does  not  compel  the 
banks  to  tie  up  in  securities  a  certain  amount  of  loanable  capital,  which 
otherwise  it  might  distribute  among  those  who  wish  to  borrow. 

The  Chairman.  That  would  be  a  great  source  of  loss  in  low-interest 
localities  and  a  great  gain  in  liigli  interest  localities. 

DAILY  REPORTS   OF    CONDITION  OF   BANKS. 

Mr.  Eckels.  Your  tenth  statement  is  as  follows: 

Under  the  present  law  the  Comptroller  of  the  Currency  does  not  know  the  exact 
condition  of  the  banks  exeept  by  occasional  rejiorts  and  occasional  examinations 
by  official  bank  examiners. 

Under  the  proposed  bill  the  Government  will  know  of  each  day's  condition  of  the 
banks  and  also  by  the  same  examinations  as  under  present  law. 

Under  the  present  law  the  Comptroller  tries  to  know  the  condition 
of  the  banks  by  examination.  Of  course,  any  provision  which  would 
give  him  from  day  to  day  or  from  month  to  month  a  more  complete 
knowledge  would  better  enable  him  to  discharge  his  duties. 

The  Chairman.  Under  the  proposed  bill  he  would  have  a  daily 
rejiort  ? 

Mr.  Eckels.  They  are  to  keep,  as  I  understand  it,  a  daily  report, 
but  those  reports  would  only  be  sent  to  the  Comptroller  once  a  month. 

The  Chairman.  You  would  not  know  on  each  day,  but  subsequently 
you  would  know  the  condition  of  the  banks  every  day  in  the  mouth  at 
the  end  of  it,  and  each  year. 

REDEMPTION  FUND. 

Mr.  Eckels.  Your  eleventh  statement  is  as  follows: 

The  present  law  takes  out  of  the  currency  the  banks  are  allowed  the  5  per  cent 
redemption  fund  the  bank  is  required  to  keep. 

The  Walker  bill  provides  that  the  Government  shall  furnish  it  by  setting  aside 
10  per  cent  of  the  money  the  banks  pay  for  the  half  of  the  currency  they  buy  in  the 
form  of  United  States  legal-tender  notes. 

That  is  simply  a  statement  of  a  fact  under  the  provision  of  your  bill. 

Mr.  Hill.  Is  it  a  fact"? 

Mr.  Eckels.  It  is  a  fact  relative  to  the  present  law.  It  takes  out  of 
the  currency  circulation  the  5  ])er  cent. 

The  Chairman.  My  bill  provides  the  Government  shall  furnish  it. 

Mr.  P^ckels.  1  think  any  provision  of  the  law,  any  amendment  to  the 
law,  or  any  provision  in  a  new  law — referring  again  to  section  ten — 
which  would  give  the  Comptroller  better  information  for  the  beneht  of 
the  people  would  be  a  good  thing. 

USE   OF   RESERVES. 

Tour  twelfth  statement  is  as  follows : 

The  present  law  i'orbids,  under  severe  penalties,  the  banks  under  any  circumstances 
to  use  their  reserves  for  the  very  ])urpose  for  which  the  banks  are  jeijuircd  to  keep 
such  reserves. 

The  Walker  bill  allows  the  banks  to  use  their  reserves  in  any  legitimate  way  for 
the  pur])Oses  for  which  they  are  recjuired  to  keep  a  reserve. 

I  am  under  the  im])r('ssion,  Mr,  Walker,  that  either  I  have  a  misap- 
l)iehension  of  the  use  of  a  reserve  or  you  have  a  misapprehension.    My 


FINANCIAL    AND    BANKING    SITUATION  321 

understanding  of  ;i  reserve  is  that  it  is  kept  for  the  ])urpose  of  meeting' 
tlie  demands  of  depositors.  That  fact  is  einpliasized  by  the  change 
which  was  made  in  the  hxw  that  discontinued  or  did  away  with  the 
necessity  of  a  bank  keeping  a  reserve  against  notes  and  only  compelled 
it  to  keep  a  reserve  against  deposits.  For  the  purpose  of  accomplish- 
ing the  thing  which  the  reserve  is  kept  for,  a  bank  is  justified,  and,  in 
fact,  compelled  to  pay  out  the  last  cen^^  of  its  reserve  to  meet  the 
demands  of  depositors.  It  is  only  prohibited  by  the  law  from  using 
that  reserve  to  make  new  loans,  except  the  meeting  of  bills  of  exchange 
or  some  such  matter  as  that.  But  it  can  use  it  for  the  purpose  for  which 
it  is  created,  and  when  it  has  used  it  ibr  that  purpose  it  is  ])rovided  by 
the  law  that  it  shall  have  the  succeeding  thirty  days  in  which  to  make 
its  reserve  good. 

TREASURY   DIVORCED   FROM  BANKING. 

Your  thirteenth  statement  is  as  follows : 

Under  the  present  law  every  operation  of  tbe  Treasury  expands  or  contracts  the 
currency  to  the  serious  injury  of  the  Imsiness  of  the  country.  Witness  the  outcry 
all  over  the  country  that  the  Treasury  is  contracting-  the  currency  and  injuring  busi- 
ness in  collecting  the  pay  for  the  bonds  recently  sold. 

Under  the  Walker  bill  whatever  sum  the  Treasury  had  or  failed  to  have  available 
would  not  aft'ect  the  volume  of  the  currency  of  the  country  by  the  smallest  fraction. 

I  think  the  statement  is  correct,  that  under  the  present  law  every 
operation  of  the  Treasury  Department,  so  far  as  its  handling  demand 
obligations  is  concerned,  does  affect  the  volume  of  the  currency. 

The  Chairman.  The  statement  of  paragraph  l.'>  is  correct  then? 

Mr.  Eckels.  Yes ;  because  under  your  bill  you  design  to  completely 
divorce  the  Treasury  from  banking  and  therefore  it  would  be  a  matter 
of  perfect  inditiereuce  to  business  people  whether  the  Treasury  was  all 
right  or  the  Treasury  was  all  wrong,  so  far  as  they  were  concerned. 

The  Chairman.  So  far  as  the  currency  is  concerned? 

Mr.  Eckels.  Yes;  if  it  didn't  have  any  of  these  obligations  to  meet. 
Of  course  if  it  didn't  have  enough  revenue  to  meet  its  current  expenses 
it  might  cause  an  inconvenience  to  the  peo])le  to  whom  the  Government 
was  indebted,  but  that  would  not  in  any  wise  affect  the  business  of  the 
people. 

PROFIT  ON  circulation  TO  THE  BANKS. 

Your  fourteenth  statement  is  as  follows: 

Under  the  present  law  pi-actically  every  dollar  of  the  $1,000,000,000  currency  in 
circulation  is  carried  by  the  ))anks  at  not  a  cent  profit  to  them  or  anybody  else,  Ijut, 
on  the  otlier  hand,  at  a  great  loss  to  them. 

Under  the  Walker  bill  they  would  be  relieved  of  $400,000,000  of  this  burden,  and 
competition  would  soon  re<luce  interest  on  their  loans  and  discounts  to  the  people  by 
the  legitimate  profit  they  Avould  get  upon  their  currency. 

I  take  it  that  the  basis  of  your  statement  in  that  paragraph  is  that 
with  the  (iovernment  relieved  of  the  current  redemption  of  the  demand 
obhgations  and  the  banks  given  the  benefit  of  the  issuance  of  currency 
against  assets,  bank  currency  could  be  increased  |40(),(KK),000  witliout 
any  additional  expense. 

The  Chairman.  If  the  banks  put  it  in  circulation  without  having  to 
buy  bonds  they  would  get  the  profit.     Now  they  do  not  get  the  profit. 

Mc.  Eckels.  Your  idea  is  that  except  in  times  of  storms  and  busi- 
ness depression  and  restriction  of  credit  the  banks  do  practically 
currently  redeem  all  this  credit  money. 

The  Chairman.  The  point  is  that  in  other  countries  the  banks  are 
CUR 21 


322  FINANCIAL    AND    BANKING    SITUATION. 

issuing  all  the  currency  and  the  banks  get  the  profit  on  the  currency 
first,  and  the  people  get  it  finally  in  lower  interest,  while  in  this  country 
a  thousand  million  dollars  is  issued  by  the  Government  on  which  the 
banks  get  no  profit,  so  that  being  deprived  of  the  issuing  of  the  cur- 
rency it  amounts  to  carrying  this  for  nothing  and  higher  interest  accord- 
ingly.   They  ha^^e  to  carry  it. 

ELASTICITY. 

Mr.  Eckels.  Your  fifteenth  statement  is  as  follows : 

Under  the  present  law  national  hank  currency  notes,  which  are  the  people's  money, 
are  a  freak  money.  They  are  forced  out  of  circnlatiou  when  the  credit  of  the  Gov- 
ermneut  is  best,  business  most  active,  and  the  people  need  the  most  money;  they  are 
forced  into  circulation  by  the  banks  when  the  peoj)le  do  not  need  them  and  can  not 
use  them. 

Under  the  proposed  bill  it  would  be  for  the  interest  of  the  banks  to  i'isne  most 
money  when  the  iieople  needed  it,  and  to  just  as  large  an  amount  as  the  jieoplc  can 
use.  The  competition  between  banks  in  forcing  it  out  will  make  it  just  as  cheap  as 
money  can  possibly  be  issued  under  any  system,  and  kept  "good"  and  honestly  used 
by  the  people,  and  when  they  most  need  it.  That  pari  and  only  that  part  of  the  cur- 
rency will  be  forced  back  to  the  banks  that  the  people  can  not  profitably  use. 

The  statement  is  correct  that  the  volume  of  the  national-bank  note 
currency  is  curtailed  when  the  price  of  bonds  is  the  highest  because  of 
the  lack  of  profit  in  taking  out  circulation  upon  high-priced  bonds. 

CHEAPNESS. 

Your  sixteenth  statement  is  as  follows : 

Under  the  present  law  the  United  States  has  the  most  exjien^ve  currei/cy  system 
of  any  first-class  nation. 

Under  the  pro])osed  law  the  currcmcy  will  cost  them  as  little  as  it  can  possibly  he 
issued  for  and  maintain  the  circulation  of  the  legal-tender  notes,  etc. 

I  think  that  the  Government  of  the  United  States  has  the  worst 
financial  system  of  any  first-class  nation.  It  is  the  outgrowth  in  its 
different  parts  in  every  instance  of  an  immediate  necessity.  The 
national-banking  system  sprang  from  the  necessities  of  the  war  and 
since  1804,  except  in  slight  administrative  matters,  has  remained  i:)rac- 
tically  unchanged.  The  redeTni)tion  act  was  the  best  considered  of 
any  piece  of  financial  legislation  since  the  war  and  after  it  went  into 
operation,  to  meet  an  apparent  necessity,  one  of  the  best  things  in  it 
Avas  taken  out  and  instead  of  the  legal  tenders  being  retired  and  cair- 
celed  beyond  .$.')()0,000,()00,  the, additional  amount  thereof  was  reissued 
and  a  compulsory  law  compelling  the  Secretary  to  continue  to  reissue 
them  after  they  had  been  redeemed  vvas  passed. 

EFFECT    OF    THE    BLAN'D-ALLISON    A(^T. 

The  first  piece  of  silver  legislation,  the  Bland- Allison  Act,  was  experi- 
mental to  the  extent  that  it  was  designed  to  meet  and  put  an  end  to 
tiie  demands  of  those  who  asked  for  an  increase  of  irredeemable  cur- 
rency issued  by  the  Government.  It  was  sujiposed  by  the  provision  of 
that  bill  the  volume  of  currency  would  be  enlarged  and  nothing  more 
would  be  heard  about  fiat  currency.  That  law  created  a  dollar  which 
difiered  from  the  one  demanded  by  the  fiatists  of  that  time  iu  degree 
only,  and  not  in  principle. 


FINANCIAL    AND    BANKING    SITUATION.  323 


EFFECT    OF    THE    SHERMAN  ACT. 

Then  came  the  silver-i)urcliasiug  act  of  18!)0,  which  was  experimental 
and  whicli  many  in  and  out  of  Congress  believed  at  the  time  of  its 
enactment  would  certainly  bring  the  people  into  trouble.  All  these 
things  could  not  but  give  the  country  a  thoroughly  poor  and  expensive 
system  of  finance. 

nOAED  OF  EXPERT  ADVISERS. 

Your  seventeenth  statement  is  as  follows : 

Under  the  present  law  there  is  no  way  for  the  Secretary  of  the  Treasury  to  avail 
himself  of  the  expert  assistance  th;it  is  absolutely  necessary  to  him  to  properly  dis- 
charge his  duties  and  that  every  hanker  in  the  country  has  in  his  clearing-house  com- 
mittee and  banking  associates,  etc.  To-day,  if  the  Secretary  seeks  any  advice  he 
thereby  inaugurates  a  panic — the  very  panic  he  may  be  seeking  to  avert. 

Under  the  proposed  bill  the  reverse  is  true.  It  is  made  to  the  interest  of  the  banks 
to  furnish  to  the  Secretary  of  the  Treasury  as  advisers,  seven  of  the  most  experienced, 
public-siiiriteel,  and  patriotic  bankers  in  the  country. 

Unquestionably  both  the  Secretary  of  the  Treasury  and  the  Comp- 
troller of  the  Currency  could  be  very  much  aided  by  the  advice  of  men 
from  different  parts  of  the  country  who  are  conversant  with  the  needs  of 
those  portions  of  the  country,  and  an  advisory  board  would  undoubtedly 
be  of  great  benefit. 

CLEARING-HOUSE   PROVISIONS. 

Your  eighteenth  statement  is  as  follows: 

Under  the  present  law  the  enormous  expense  of  our  financial  and  banking  methods 
of  itself  alone,  if  there  was  no  other  disadvantage,  puts  us  out  of  competition  for 
the  world's  commerce.  They  are  so  expensive,  as  compared  with  the  currency  of 
Great  Britain,  that  -were  -we  on  precisely  the  same  economic  plane  of  Great  Britain 
as  to  wages,  machinery,  skill,  enterprise,  ability,  steamships,  railroads,  navy,  diplo- 
matic and  consular  agents,  and  established  business  at  every  point,  duplicating  that 
of  Great  Britain,  the  difference  between  the  cost  of  money  in  this  country  as  com- 
pared with  that  of  Great  Britain,  France,  or  Germany  would  enable  Great  Britain 
to  beat  out  and  destroy  our  foreign  trade  in  favor  of  her  own,  and  wholly  on  account 
of  our  banking  and  Treasury  redemption  system. 

During  the  whole  period  from  1879  to  1891  the  United  States  Treasury  took  all  the 
risk  and  was  at  all  the  expense  of  the  clearing-house  system  of  its  current  gold 
redemption  of  legal-tender  and  Treasury  notes.  Then,  and  it  will  be  the  same  again, 
confidence  could  not  be  maintained  in  such  empirical  jiractices  -without  a  surplus  in 
the  Treasury  as  large  as  was  then  held,  or  very  nearly  $300,000,000,  about  half  of  it 
in  gold,  equal  to  half  the  national  banking  capital  in  the  country.  Every  advantage 
accrued  to  the  banks  and  every  disadvantage,  expense,  risk,  and  loss  to  the  people 
through  the  United  States  Treasury. 

Under  the  Walker  bill  the  United  States  Treasury  would  only  touch  the  national 
clearing  house  as  a  fiscal  agent  and  depository  of  public  moneys,  having  as  a  guar- 
anty of  the  safety  of  such  deposits  the  whole  $1,000,000,000  of  banking  capital  of 
the  country  as  a  guaranty  fund  for  its  deposit  in  the  national  clearing  house.  The 
Treasury  could  in  no  event  incur  any  loss  or  be  put  to  any  expense,  as  it  would  be 
the  only  dejiositor  of  money  in  that  association.  Except  in  the  Walker  bill,  or  its 
equivalent,  there  is  no  possible  way  of  avoiding  the  continuance  of  this  enormous 
loss  to  the  people.  There  is  no  conceivable  way  of  resuming  a  safe  Treasury  coin 
redemption  of  paper  money  but  in  returning  to  the  practice  described  by  Mr.  \V. 
Dodsworth  or  enacting  into  law  the  Walker  Ijill  or  its  equivalent. 

It  provides  a  more  effective  and  lar  safer  connection  of  the  Treasury  of  the  United 
States  with  the  principal  banking  clearing  house  in  the  country,  and  relieves  the 
United  States  Treasury  from  taking  all  the  risks  and  of  being  subject  to  all  the 
losses  that  are  involved  in  the  clearing-house  business  of  the  country,  which  risk  is 
carried  from  the  resumption  of  8])ecie  payments  in  1879  to  about  the  middle  of  1891, 
at  an  expense  to  the  people,  supplied  by  taxation,  of  over  $12,000,000  a  year. 


324  FINANCIAL    AND    BANKING    SITUATION. 

I  do  not  know  that  I  would  state  it  as  broadly  as  you  do,  but  unques- 
tionably we  are  placed  at  a  disadvantajie  by  au  expensive  financial  sys- 
tem, because  anything"  which  adds  to  the  general  expense  of  the  people 
to  that  extent  affects  their  ability  to  compete  in  a  business  way  with 
people  who  are  not  under  that  disadvantage. 

I'SE   OF   RESERVES. 

The  Chairman.  I  have  only  one  question  to  ask.  Please  turu  back 
to  my  twelfth  statement,  wliich  you  have  read.  It  says  the  law  forbids 
under  severe  penalties  the  baidcs  under  any  circumstances  to  use  their 
reserves  for  the  very  purpose  for  which  they  are  reijuired  to  keep  such 
reserves.  My  point  there  is  a  practical  one  and  it  is  this:  that  banks 
shutting  down  absolutely  and  immediately  upon  their  loans  to  their 
customers  and  refusing  discounts  will  cause  the  insolvency  of  the  cus- 
tomer and  tend  to  fail  the  bank  also,  when  if  they  could  loan  their 
funds  to  customers  to  recover  and  recoup  their  credit  gradually  the 
banks  would  be  just  as  safe  and  absolutely  safer,  and  that  therefore  the 
law  lorbids  their  doing  what  every  banker  does  under  the  same  condi- 
tions where  that  restriction  is  not  upon  him,  and  therefore  it  amounts 
in  practice  to  the  forbidding  of  the  doing  of  the  thing  practically  nec- 
essary to  be  done, 

Mr.  Eckels.  Except  that  I  believe,  Mr.  Walker,  the  statement,  in 
view  of  the  provision  of  the  law,  is  not  worded  exactly  right. 

The  Chairman.  That  is  to  say,  it  is  worded  too  strongly. 

Mr.  Eckels.  Well,  it  is  worded  too  strongly,  then.  1  think  that  in 
that  pro])osition  you  ought  to  have  embodied  just  Avhat  you  have  stated, 
because  it  puts  that  which  you  do  not  wish  to  have  understood 

The  Chairman.  Then  I  ought  to  say  to  rightly  use.  That  would 
cover  it. 

Mr.  Eckels.  I  think  you  might  say  that  the  ])resent  provision  of  the 
law  is  based  upon  an  incorrect  principle. 

In  a  general  way,  Mr.  Walker,  I  want  to  say  this,  that,  as  I  have 
stated  to  the  committee,  in  your  bill  are  embodied  a  good  many  correct 
banking  princi])les. 

The  Chairman.  What  are  the  princii)les  in  it  that  are  not  correct? 

Mr.  Eckels.  1  have  not  said  that  there  are  any  that  are  not,  but  that 
the  objection  that  it  will  meet  with,  as  will  the  other  bills  here,  is  the 
undertaking  to  engraft  an  entirely  new  note  system  in  this  country. 

The  Chairman.  Upon  the  present  system? 

j\Ir.  Eckels.  Upon  the  ])resent  sj'stem;  and  that  when  a  new  act  is 
passed  which  will  supersede  the  present  banking  act  it  will  be  upon 
principles  which  incorporate  the  issuance  of  credit  currencj^  against 
assets,  something  provided  in  this  bill.  It  is  going  to  take  a  long  time, 
1  think,  to  get  the  banking  interests  to  accei)t  an  entirely  new  bill;  it 
is  going  to  take  a  longer  time,  I  think,  for  Congress  to  accept  it,  and  it 
is  going  to  take  a  still  longer  time  for  the  i)ublic  to  accept  it. 

The  Chairman.  We  are  not  discussing  that.  I  think  the  people 
may  thiidc  the  banks  can  take  care  of  themselves. 

unanimous  committee  report  essential. 

Mr,  Eckels.  1  think  one  of  the  essential  things  is  that  when  a  bill 
comes  from  this  committee  it  should  be  ])ractically  a  unanimous  bill. 

The  Chairman.  Have  any  gentlemen  of  the  committee  any  questions 
they  would  like  to  ask  the  Comptroller? 


FINANCIAL    AND    BANKING    SITUATION.  325 


ISSUE    OF    LEGAL   TENDER, 

Mr.  Hill.  Will  you  kindly  take  House  bill  171  and  look  at  section  8, 
page  9  ?     I  lind  there : 

The  Secretary  of  tlie  Treasury  is  hereby  authorized  to  issue  United  States  lethal- 
tender  notes,  described  in  section  3  of  the  act  of  March  3,  1JS63,  to  the  amount  nec- 
essary to  carry  into  effect  the  provision  of  tliis  act. 

I  want  to  ask  you  wlietlier  or  not  you  think  a  proposition  of  that  kind, 
whereby  the  Secretary  is  authorized  to  issue  to  au  unlimited  extent 
legal-tender  United  States  notes,  would  be  accepted  by  the  people  at  the 
present  time? 

The  Chairman.  It  is  not  an  unlimited  issue  of  United  States  notes. 

Mr.  Hill.  I  beg  your  pardon,  Mr.  Chairman;  I  understand  I  have 
the  floor  now. 

Mr.  Eckels.  The  section  seems  to  limit  the  issue  of  notes  to  the 
amount  necessary  to  carry  into  etfect  the  provisions  of  this  act,  which, 
I  take  it,  is  the  amount  the  banks  could  absorb. 

Mr.  Hill.  Dependent  solely  ui)on  the  amount  of  bank  capital? 

Mr.  Eckels.  Yes. 

Mr.  Hill.  Do  you  think  that  would  meet  the  views  of  the  people  of 
the  United  States  at  the  i)resent  time? 

Mr.  Eckels.  I  do  not  think  the  people  of  the  United  States  want 
any  more  demand  obligations  issued,  but  Just  here,  to  be  i^erfectly  fair 
to  myself  and  the  chairman,  as  I  understand  it,  it  is  not  the  purpose 
of  the  chairman  in  his  bill  to  have  a  single  dollar  of  demand  obliga- 
tions issued  by  the  Government  except  as  a  basis  for  circulation,  which 
he  looks  upon  as  a  uoninterest-bearing  bond,  and  that  whenever  a  bank 
goes  out  of  circulation  that  note  is  redeemed  and  canceled. 

Mr.  Hill.  Certainly;  I  understand  so. 

jMr.  Eckels.  In  this  connection  I  wish  to  say  that  my  own  view, 
heretofore  expressed,  is  that  the  safest  and  surest  plan  is  to  pay  and 
cancel,  and  thus  get  all  the  demand  obligations  out  of  the  way.  It  is 
the  chairman's  idea  that  at  this  time  that  is  not  practical,  and  this  is 
the  next  best  thing. 

The  Chairman.  A  makeshift. 

Mr.  Eckels.  Yes,  the  imprisonment  feature. 

Mr.  Hill.  Do  you  believe  that  the  United  States  can  issue  a  legal- 
tender  currency  and  put  it  in  the  hands  of  the  banks  for  current  daily 
redemption  and  cease  the  responsibility  for  current  daily  redemption 
themselves"? 

Mr.  Eckels.  I  think  the  banks  could  take  care  of  the  current 
redemption  of  the  notes  issued  by  the  banks. 

Mr.  Hill.  I  think,  undoubtedly,  as  a  physical  proposition  they  could; 
but  I  am  talking  about  tlie  responsibility  of  that  daily  redemption  of 
the  legal  tender  United  States  notes.  Can  the  United  States  divest 
itself  of  its  responsibility  while  the  note  is  in  existence? 

Mr.  Eckels.  If  the  United  States  attaches  legal-tender  properties 
to  these  notes,  I  sup])ose  if  the  bank  failed  to  currently  redeem  them 
that  would  be  an  act  of  insolvency,  and  then  the  bank  would  go  into 
the  hands  of  a  receiver  and  the  United  States  would  assume  the  ulti- 
mate redemption. 

The  Chairman.  The  bill  provides  that. 

Mr.  Eckels.  1  want  it  distinctly  understood  that  I  do  not  believe 
myself  in  the  Government  issuing  any  demand  obligations;  but  here  is 
an  embarrassing  situation,  and  the  question  is,  What  is  the  best  way  to 
get  rid  of  it? 


326  I'INANCIAL    AND    BANKING    SITUATION. 

Mr.  IIiLT,.  Understand,  I  .ini  not  asking  these  qnestions  for  tlie  sake 
of  linding  fault  with  the  bill,  but  I  want  to  have  a  clear  understanding 
of  it  myself.  There  are  many  things  in  the  bill  I  like.  Turn  to  section 
5  as  it  is  iu  the  new  bill  you  now  have. 

Mr.  EcKELt<.  Of  course  all  these  bills  are  the  particular  bills  of  those 
introducing  them,  and  I  am  simply  here  to  reply  to  such  questions  as 
the  gentlemen  of  the  committee  desire  to  imt  to  me. 

RESTRICTION    OF    CIRCULATION. 

Mr.  Hill.  On  the  bottom  of  page  9  you  find  section  10: 

That  the  Comptroller  of  the  Currency  shall  issue  in  blank  to  any  association  and 
the  association  may  issne  currency  notes  of  diftereut  denominations,  as  provided  in 
section  20,  in  addition  to  the  greenbacks  described  in  section  6,  etc 

The  point  of  the  question  1  wish  to  ask  is  whether  it  is  a  safe  propo- 
sition that  the  Comptroller  of  the  Currency  should  have  the  right  that 
is  there  given  him  to  reduce  or  order  the  issue  of  currency  at  his  own 
option  or  guided  and  aided  by  a  committee  of  counsellors,  controlling 
the  entire  circulation  of  the  United  States  at  his  option.  Do  you  think 
that  IS  a  safe  proposition  to  go  into  law? 

Mr.  Eckels.  1  stated  yesterday,  Mr,  Hill,  that  so  far  as  my  own 
views  were  concerned  I  did  not  believe  iu  restrictive  measures  relative 
to  circulation;  that  if  I  placed  the  resjionsibility  upon  the  banks  of 
redeeming  them,  I  should  give  the  banks  the  liberty  of  using  their  own 
judgment — leaving  it  to  the  managers  of  the  banks  as  to  whether  or 
not  there  should  be  an  increase  or  contraction — but  there  might  be  a 
set  of  circumstances  where  an  emergency  would  arise  when  it  might 
seem  necessary  to  issue  a  very  large  amount.  My  theory  of  bank-note 
currency  is  to  give  the  banks  tlie  riglit  and  to  i^laee  ui)on  the  banks  the 
responsibility,  a. id  having  done  that  let  them  exercise  their  best  judg- 
ment, believing  that  they  would  always  do  the  thing  which  would  con- 
tribute best  to  the  prosperity  of  the  people,  because  only  through  the 
prosperity  of  the  people  could  they  themselves  prosper. 

The  Chairman.  Turning  over  to  page  11  of  tlie  bill  (H.  E.  171)  of 
December  0,  1895,  I  refer  to  tlie  emergency  circulation. 

Mr.  Brosius.  Section  17  contains  the  emergency  issue,  page  13. 

EMERGENCY    CIRCULATION. 

Mr.  Hill.  Section  17  provides  that  tlie  Comptroller  may  issue  to  the 
national  clearing  house  provided  for  by  section  Gli,  or  to  any  banking 
association  organized  under  this  act,  the  greenbacks  described  in  sec- 
tion 6  to  any  amount  approved  of  in  writing  by  the  Secretary  of  the 
Treasury,  in  addition  to  the  amount  issued  under  section  G.  This  ])ro- 
vides  for  an  emergency  circulation  to  be  issued  in  the  first  place,  and  it 
provides  later  on  for  an  emergency  circulation  to  be  issued  by  clearing 
houses. 

The  Chairman.  Issued  to  clearing  houses  ? 

Mr.  Hill.  Issued  to  the  national  as  well  as  to  the  local  clearing 
houses.  I  would  ask  whether,  iu  your  judgment,  under  that  identical 
bill — it  is  identical  in  all  its  ])rovisions,  the  public  is  absolutely  unable 
to  distinguish  between  the  bank  issues — it  is  a  legal-tender  bill  the 
same  as  the  other,  but  a  United  States  legal  tender — does  not  the  same 
necessity  exist  for  a  redemption  fund  being  set  aside  as  under  the  other 
bills? 


FINANCIAL    AND    BANKING    SITUATION.  327 

Mr.  Eckels.  ITndoubtedly  these  bills  could  be  currently  redeemed 
unless  the  bills  should  be  for  a  definite  period  of  time,  to  be  redeemed  just 
as  the  clearing-house  certificate  is  redeemed. 

Mr.  Brosius.  l>ut  the  redemption  fund  held  by  the  United  States 
Government  should  be  increased  proportionately  with  the  issue  of  such 
currency. 

Mr.  Eckels.  If  the  notes  were  to  be  currently  redeemed;  but  if  the 
notes  provide  that  they  are  to  be  redeemed  at  certain  times,  it  might 
not  be  necessary  to  increase  the  current  redemption  fund. 

Mr.  Brostus.  But  the  bill  does  not  so  provide. 

The  Chairman.  It  is  a  penalty  if  they  are  kept  out. 

Mr.  Brosius.  Yes;  of  course. 

CLEARING-HOUSE    CERTIFICATES. 

Mr.  Eckels.  I  take  it  these  notes  are  to  be  the  same  as  clearing- 
house certificates,  except  in  small  denominations. 

The  Chairman.  ''Of  not  less  than  81,U00.'' 

Mr.  Eckels.  And  that  they  can  be  used  for  that  which  a  clearing- 
house certificate  can  not  be,  viz,  to  circulate  as  currency.  Under  the 
general  rules  of  clearing  houses,  certificates  issued  can  not  circulate  as 
currency.  Under  the  operation,  for  instance,  of  the  New  York  Clear- 
ing-House  Association  the  present  clearing-house  certificate  is  some- 
thing like  a  collateral. 

responslbility  for  current  redemption. 

Mr.  Hill,  Section  27,  on  page  18,  of  the  new  bill,  provides  that  the 
Treasurer  shall  at  all  times  keep  and  have  on  deposit  in  the  Treasury 
of  the  United  States,  in  coin  or  in  coin  certi^eates  for  the  redemption 
fund  of  each  association,  during  the  solvency  of  the  association,  the 
10  iier  cent  provided  in  section  12,  to  be  held  and  used  for  the  current 
redemption  of  its  greenback  and  reserve  notes;  and  when  the  notes  of 
any  association  organized  under  this  act,  assorted  or  unassorted,  shall 
be  presented  for  such  redemption  to  the  Treasurer  of  the  United  States 
in  sums  of  8500  or  any  multiple  thereof,  or  in  sums  equaling  not  less 
than  1  ])er  cent  of  its  total  circulation  of  banks  having  less  than  830,000 
in  circulating  notes,  the  same  shall  be  redeemed. 

Now,  does  not  that  provide  for  a  current  daily  redemption,  not  only 
of  legal- tender  paper  issued  under  this  bill,  but  also  reserve  notes 
issued  under  this  bill  I 

Mr.  Eckels.  It  is  supi^osed  that  every  note  issued  by  the  bank  would 
be  currently  redeemed. 

Mr.  Hill.  But  doesn't  this  i)rovide  for  a  current  daily  Treasury 
redemi)tion  ? 

Mr.  Eckels.  I  suppose  that  that  which  Mr.  Walker  desires  to  arrive 
at  is  that  the  responsibility  for  current  redemption  shall  be  i^laced  upon 
the  bank,  although  it  may  be  done  through  the  agency  of  the  Govern- 
ment. 

The  Chairman.  That  is  a  proArision  of  existing  law. 

Mr.  Eckels  (continuing).  That  the  Government  simply  acts  as  an 
agent,  so  far  as  current  redemption  is  concerned,  but  the  total  respon- 
sibility of  current  redemption  is  placed  upon  the  bank,  and  that  the 
final  responsibility,  in  case  of  the  failure  of  a  bank,  comes  upon  the 
General  Government  under  its  guaranty. 

Mr.  Brosius.  Isn't  this  the  same  provision  as  that  now  existing  in 
reference  to  current  redemption? 


328  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  Except  tliat  Mr.  Walker's  bill  increases  the  percentage 
of  the  redemption  fund  placed  with  the  Government  to  10  per  cent. 

RELIEVING    THE    GOVIORNMENT    OF    liANKING   FUNCTIONS. 

]\[r.  Hill.  Does  the  bill,  as  a  matter  of  fact,  relieve  the  Government 
of  its  banking  functions  or  does  it  put  it  into  the  business  very  inuck 
more  deeply? 

Mr,  Spalding.  That  is  the  point, 

Mr.  Eckels.  My  idea  is  that  when  we  speak  of  the  banking  function 
of  the  Government  we  apply  that  term  to  the  Government's  issuing 
demand  obligations,  which  <lemand  obligations  Mr.  Walker  designs 
under  his  bill  to  eliminate  in  so  far  as  the  redem])tion  from  day  to  day 
is  concerned,  and  that  instead  of  tlie  holders  thereof  being  able  to  go 
to  the  Treasury  and  obtain  on  those  demand  obligations  gold,  which  has 
been  secured  by  the  Government  through  its  own  agents  or  through  the 
means  of  customs  receipts  or  through  the  issuance  of  bonds,  the  gold 
therefor  shall  be  supjdied  by  the  banks.  The  responsibility  of  the  Gov- 
ernment is  t()  be  simply  to  see  that  the  banks  keei)  that  amount  there, 
tliat  the  Government  stores  it,  that  the  Government  pays  it  out,  and 
that  if  there  is  failure  on  the  part  of  the  banks  to  provide  for  redemp- 
tion the  Government  will  step  in  and  close  the  bank. 

The  Chairman.  Isn't  it  a  fact  that  my  bill  makes  the  Government 
only  an  agent,  and  that  under  the  present  law  the  Government  is  made 
the  principal? 

Mr.  Hill.  I  understood  Mr.  Brosius  to  say  the  terms  of  this  are 
identical  with  the  present  law.  I  see  in  the  next  section  it  is  within 
the  power  of  tlie  Secretary  to  transfer  it  to  the  otljers,  taking  proper 
security,  and  that  does  not  relieve  the  Government  of  responsibility. 

Mr.  Eckels.  Under  the  present  law  the  Government  is  the  agent  for 
the  redemption  of  the  bank,  but  the  banks  supply  the  required  amount 
of  lawful  money  for  making  tlie  redemi:>tions. 

Mr.  Hill.  Under  the  provisions  of  this  bill,  as  I  understand  it,  the 
banks  of  the  United  States  can  organize  into  local  clearing-house 
associations;  the  local  clearing-liouse  associations  can  organize  into 
what  is  known  as  the  national  clearing-house  association.  Uiuler  the 
provisions  of  this  bill  the  board  of  control,  which  it  provides  for,  has 
absolute  power  to  order  the  withdrawal  and  redemi)tion  of  the  circu- 
lating medium  or  the  bank  issues,  or  to  order  them  issued,  either  one. 
13o  you  believe  it  is  a  safe  power  to  put  into  the  hands  of  any  four  men 
in  this  Ivcpublic  the  absolute  control  through  the  clearing-house  asso- 
ciation, which  this  ])rovides  for,  making  practically  one  large  national 
bank,  as  it  is  i)ossible  it  would  be,  with  full  power  of  the  issue  and 
withdrawal  of  the  circulation'? 

AGGREGATED  CAFITAL  NOT  DANGEROUS. 

Mr.  Eckels.  As  1  have  said,  I  would  like  the  l)anks  largely  to  arrange 
that  matter  among  themselves.  It  seems  to  me  self  ])rotection  would 
prevent  any  undue  danger,  even  though  they  should  select  a  certain  set 
of  men  as  managers.  1  believe  that  there  is  a  good  deal  of  exaggera- 
tion as  to  the  dangers  atteiulant  upon  the  aggregation  of  capital.  I  do 
not  think  aggregated  capital  does  anything  more  dangerous  to  the 
public's  interests  than  individual  ca])ital,  because  aggregated  cajiital  is 
simi)ly  the  capital  of  combined  iiulividuals,  and  combined  individuals 
in  a  corporation  know  that  their  institutions  can  not  prosper  if  there  is 


FINANCIAL    AND    BANKING    SITUATION.  329 

not  general  prosperity  among  tlie  people.  There  can  not  be  a  situation 
with  the  people  poverty  stricken  without  capital  each  day  lessening  its 
own  holdings  and  thereby  impoverishing  those  who  constitute  the  cor- 
poration and  lessening  the  amount  of  profit  which  they  draw  from  a  use 
of  the  general  aggregate. 

Mr.  Brosiub.  Eecurring  to  the  first  item  in  the  general  statement,  I 
think  I  will  ask  you  a  question  or  two,  Mr.  Comptroller. 

PRESENT   REDEMPTION   METHOD    SURE   AND    SAFE. 

Turning  to  page  17  of  Mr.  Walker's  argument  showing  the  excel- 
lencies of  the  bill,  I  want  to  ask  you  whether  the  present  mode  of 
redemption,  under  existing  law,  is  not  absolutely  sure  and  absolutely 
safe,  as  long  as  the  Government's  credit  stands. 

Mr.  Eckels.  As  long  as  the  Government's  credit  is  of  a  character 
that  it  can  obtain  an  amount  of  gold  necessary  to  meet  these  things; 
but  in  the  maintenance  of  that  credit  there  is  a  tremendous  expense 
put  upon  the  people,  in  the  way  of  taxation  upon  bonds;  and  in  the 
way  of  the  daily  disturbance  of  the  business  of  the  people,  who  either  . 
wrongly  or  rightly  measure  their  undertakings  by  the  probability  of 
the  Government's  maintaining  its  credit.  It  seems  to  me  the  Govern- 
ment should  be  put  in  a  position  where  the  necessity  did  not  exist  for 
exerting  itself  always  to  maintain  its  credit. 

Mr.  Brosius,  You  mean  to  say  that  the  maintenance  by  tlie  Govern- 
ment of  these  demand  obligations  under  existing  law  is  liable  to  bring 
embarrassment  u^jon  the  Government! 

Mr.  Eckels.  Yes. 

Mr.  Brosius.  Of  course,  you  will  see  that  my  inquiry  did  not  reach, 
to  that.     I  am  only  speaking  of  the  question  of  redemption 

Mr.  Eckels  (continuing).  Because  it  is  in  the  power,  Mr.  Brosius,  of 
any  set  of  men  in  New  York  City,  or  any  other  part  of  the  country,  to 
gather  up  $100,000,000  of  legal  tenders  and  take  them  suddenly  to  the 
Treasury  for  redemption,  and  thereby  break  the  Government. 

SAFE,  BUT    EXPENSIVE. 

Mr.  Brosius.  Exactly;  but  as  long  as  the  Government  is  not  broken 
redemption  is  sure  and  safe. 

Mr.  Eckels.  Yes,  but  it  is  made  more  expensive  than  it  ought  to  be. 

Mr.  Brosius.  Does  that  involve  the  point  of  surety  and  safety  ! 

Mr.  Eckels.  No. 

Mr.  Brosius.  I  am  only  arguing  one  point. 

Mr.  Eckels.  No;  it  is  sure  and  it  is  safe  as  long  as  the  Government's 
credit  is  not  broken  down. 

Mr.  Brosius.  That  is  the  point,  then 

Mr.  Eckels.  But  it  is  expensive. 

Mr.  Brosius.  I  make  the  inquiry  because  the  statement  in  the  argu- 
ment is,  first,  that  this  bill  provides  a  surer  and  safer  method  for  the 
eurren.t  redemption,  and  also  the  final  redemption  of  such  notes,  than 
under  existing  law.  The  point  is,  as  you  have  indicated,  that  until  the 
Government  is  broken  present  redemption  is  absolutely  sure  and  safe. 

Mr.  Eckels.  But  it  can  not  be  told  from  day  to  day  whether  the 
Government  is  not  going  to  be  financially  broken. 

Mr.  Brosius.  Of  course,  that  is  so;  but  I  say  until  it  is  broken. 

Mr.  Eckels.  Of  course  if  there  is  in  the  Treasury  of  the  United 
States  a  tremendous  surplus  of  gold  which  lies  there  as  a  fund  for  some 


330  FINANCIAL    AND    BANKING    SITUATION. 

future  emergency,  which  is  taken  out  of  the  channels  of  trade  and 
which  is  a  cause  of  higlier  rates  of  interest  because  of  that  fact,  there 
is  provided  a  safe  method  of  redemption  and  a  sure  method  of  redemp- 
tion; but  why  shouhl  we  have  a  thing  that  entails  such  expense  to 
accomplisli  the  thing  that  we  desire  when  we  can  save  that  expense? 
Mr.  Brosius.  That  may  be  so.  There  may  be  other  reasous  for 
changing  the  system  which  do  not  involve  the  cjuestion  of  security. 

SAFER   AND    BETTER   REDEMPTION    ]}Y   BANKS. 

Mr.  Eckels.  On  the  other  point — the  matter  of  safety — taken  from 
day  to  day  and  year  to  year,  I  think  that  with  other  conditions  prop- 
erly adjusted  there  would  be  in  a  time  of  emergency  a  better  and  a  safer 
redemption  by  the  banks  than  by  the  Government,  Itwould  comeabout 
because  the  banks  have  the  means,  as  I  have  stated  before,  of  obtaining 
the  gold  immediately  without  going  through  the  long  process  that  has 
to  be  gone  through  with  by  the  Government  unless  there  is  a  syndicate 
contract, 

THE  SYNDICATE  BOND  CONTRACT. 

There  could  be  nothing  more  in  point  than  that  syndicate  contract. 
It  was  an  illustration  of  what  the  Treasury  could  do  when  it  undertook 
to  exercise  the  legitimate  function  of  a  bank  to  obtain  gold  to  meet  an 
immediate  necessity.  It  did  the  thing  which  was  designed,  but  in  doing  it 
it  created  a  storm  of  objections.  Every  bank  can  do  exactly  that  thing- 
when  the  necessity  arises,  and  there  would  not  be  any  questions  raised 
or  issues  discussed.  Upon  the  other  hand,  whenever  the  Government 
undertakes  to  do  a  thing  which  a  bank  does  there  are  protests  on  every 
side.  If  the  banks  were  compelled  to  do  this  thing  when  confronted, 
as  the  Treasury  was,  with  all  these  outstanding  obligations,  and  with 
but  •$S,000,000  of  coin  in  the  vaults  of  the  Treasury,  they  could  always, 
within  twenty-four  hours,  make  an  arrangement  with  those  who  could 
command  the  gold,  to  make  the  situation  j)erfectly  safe,  and  business 
would  go  on  uninterrupted. 

Mr.  Brosius.  But  up  to  the  limitation  of  the  ability  of  the  (loveru- 
nient  to  provide  the  means  of  redemi)tion,  it  is  perfectly  safe  and  secure 
as  it  is. 

NOT    SAFE    IN   AN    EMERGENCY. 

Mr.  Eckels.  It  is  safe  and  sure,  but  it  is  expensive.  It  is  safe  when 
everything  is  all  right,  but  it  is  not  safe  when  an  emergency  is  to  be 
met."  Tliere  uuist  be  tlie  provision  for  tlie  emergency  as  the  center  of 
a  sound  tinancial  system.  A  system  Avhich  is  good  when  everybody  is 
well  off  financially  and  weak  in  times  of  financial  difficulty  is  just  the 
system  to  be  avoided.  The  test  of  strength  should  be  applied  to  its 
weakest  ])oint. 

Ml'.  Brosius,  Given  this  situation  when,  by  reason  of  the  state  of 
exchange  we  are  called  u])on  for  a  large  export  of  gold,  which  is  in  the 
best  situation,  possesses  the  most  powei-,  and  the  greatest  facilities  for 
answering  such  an  unusual  demand,  the  Govei-nment  of  the  rnited 
States,  which  has  the  power  to  issue  bonds  and  (command  gold  from  the 
four  corners  of  the  earth,  or  the  jjrivate  banking  institutions"? 

civil  war  conducted  on  A  gold  basis. 

Mr.  Eckels.  The  banking  institutions.  The  Government  wouhl  have 
been,  in  more  than  one  instance,  financially  embarrassed  if  the  banks 


FINANCIAL    AND    BANKING    SITUATION.  331 

had  not  come  to  its  assistance.  The  civil  war  in  its  first  inception  was 
carried  on  on  a  gold  basis  tlirongh  the  gold  supplied  by  the  banks  and 
would  have  been  carried  on  to  its  finish  in  that  way  if  the  Goveinnient 
had  not  undertaken  to  introduce  a  method  of  obtaining  money  through 
the  issuance  of  promises  to  pay,  in  the  shape  of  currency  notes. 

Mr.  Brosius.  How  would  the  banks  get  the  gold  if  the  jjeople  who 
have  the  gold  refuse  to  sell  it  to  the  banks. 

Mr.  Eckels.  There  never  was  such  a  condition  if  sufficient  was  offered 
for  it. 

Mr.  Brosius.  But  you  said  if  the  banks  refused  to  come  to  the  rescue 
of  the  Government  by  supplying  them  with  gold  the  Government  would 
be  broken;  but  what  bank  ever  did  refuse  to  come  to  the  assistance  of 
the  Government  when  it  could  exchange  its  gold  for  a  bond  bearing 
interest  and  making  it  ijrofitable  for  it  to  do  so? 

Mr.  Eckels.  The  Government  ought  not  to  be  compelled  to  issue 
bonds,  increasing  the  taxes  of  the  people,  to  maintain  a  Government 
currency  which  is  unnecessary. 

Mr.  Brosius.  That  raises  another  question,  but  your  point  is  that 
the  Government  might  not  be  able  to  get  gold  from  the  banks.  You 
say  the  banks  could  do  this  thing  better;  but  the  banks  must  depend 
upon  gold  either  from  the  people  here  or  people  in  other  countries,  and 
if  you  assume  that  the  banks  will  not  let  the  Government  of  the 
United  States  have  its  gold — the  best  purchaser  in  the  world — what 
becomes  of  my  assumption  that  other  people  will  not  sell  their  gold  to 
the  banks  ?  My  point  is  that  the  Government  of  the  United  States, 
by  reason  of  its  i)ower  and  facilities,  can  command  gold  from  the  four 
corners  of  the  earth,  and  always  could  do  it  when  it  issues  bonds, 
whereas  the  banks  may  not  be  able  to  find  gold  anywhere. 

Mr,  Eckels.  The  facts  are  tliat  the  Government 

Mr.  Brosius.  Has  always  found  it  when  it  wanted  it. 

A    SELFISH    proposition. 

Mr.  Eckels.  Yes,  through  the  banks.  As  I  said  the  other  day,  IMr. 
Brosius,  there  must  be  eliminated  from  this  cpiestion  the  elements  of 
patriotism  and  the  element  of  sentiment.  We  are  dealing  now  with  a 
selfish  proposition,  and  a  banking  system  can  not  be  established  on 
any  other  lines  and  be  perfectly  safe. 

USE   OF   RESERVES. 

Mr.  Brosius.  Turning  to  statement  12,  in  Mr.  Walker's  argument, 
page  18,  he  says  that  the  present  law  forbids,  under  severe  penalties, 
the  banks  under  any  circumstances  to  use  their  reserves  for  the  very 
purpose  for  which  tlie  banks  are  required  to  keep  such  reserves.  Is  it 
not  the  law  to-day  that  any  bank  can  use  its  reserves  to  any  extent  it 
pleases  without  becoming  amenable  to  any  penalties  whatever,  and  not 
until  the  Comptroller  of  the  Currency  notifies  them  to  make  good  their 
reserve,  and  they  fail  to  do  so  within  thirty  days,  do  they  become  amen- 
able to  any  penalties,  and  the  discretion  of  the  Comptroller  can  be  exer- 
cised in  notifying  them  to  make  good  their  reserve?  So,  as  a  matter 
of  fact,  under  existing  law  any  bank  can  use  its  reserves  in  case  of  a 
stringency  to  their  utmost  limit  without  becoming  amenable  to  any 
penalties  until  notified  by  the  Comptroller  that  they  must  make  their 
reserve  good. 


332  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  If  tlie  bank  directors  willfnllj-  insisted  on  continually 
violating  tbe  provision  of  the  law  that  they  shall  not  nse  tlieir  reserves 
except  to  pay  tlieir  depositors,  or  in  such  way  as  the  hiw  provides,  an 
actiori  might  be  brought  to  forfeit  the  cliarter  of  such  a  bank. 

Mr.  Beosius.  How  could  an  action  be  brought  to  forfeit  the  charter 
of  a  bank  when  it  had  been  guilty  of  transgressing  no  law? 

Mr.  Eckels.  I  think  that  provision  of  the  law 

Mr.  Brosius.  Let  me  refresh  your  recollection,  Mr.  Comptroller. 

DISCRETION   ALLOWED    THE    COMPTROLLER. 

Mr.  Eckels.  Yes,  I  think  that  provision  of  the  law  does  not  expect 
that  a  bank  shall  continually  loan  money  when  its  reserve  is  short  and 
that 

3rr.  Brosius.  But  they  are  permitted  to  do  so  until  notified  by  the 
Comptroller? 

Mr.  Eckels.  They  are  not  permitted  to  make  any  loans,  but  can  use 
the  reserve  for  payment  of  depositors. 

Mr.  Brosius.  So  the  Comptroller  will  understand  that  this  question 
has  only  become  important  in  cases  of  stringency  where  it  was  really 
necessary  for  the  bank  to  draw  upon  its  reserves  beyond  the  usual  limit, 
and  the  discretion  of  theCom])troller  in  such  a  case  should  be  exercised, 
as  he  has  a  knowledge  of  the  situation,  and  he  would  exercise  a  wise 
discretion  in  not  calling  upon  a  bank 

The  Chairman.  In  not  enforcing  the  law? 

Mr.  Brosius.  That  is  enforcing  the  law.  The  law  does  not  require 
that  notification  at  any  time.  The  law  places  it  in  the  discretion  of  the 
Comptroller  as  to  when  he  shall  give  that  notice  to  the  bank. 

Mr.  Eckels.  He  is  supposed  to  do  it  when  it  comes  to  his  notice. 

Mr.  Brosius.  It  may  be  so 

Mr.  Eckels.  The  Compti-oller  has  a  wide  discretion,  and,  generally 
speaking,  I  think  it  is  generally  exercised  wisely. 

PLACE   OF   REDEMPTION. 

Mr.  Calderiiead.  A  portion  of  ray  question  has  been  answered 
already  in  reply  to  questions  asked  by  other  members  of  the  committee, 
but  a  paragraph  of  Mr.  Walker's  argument  states  that  the  bill  will 
give,  practically,  final  gold  redemption  at  the  subtreasuiy  in  New  York 
and  redemption  in  legal-tender  notes  and  silver  at  country  banks. 

The  Chairman.  No;  it  says  at  the  national  clearing  houses,  not  sub- 
treasury. 

Mr.  Calderhead.  He  says  there  that  [reading]  "  under  the  proposed 
bill  not  a  dollar  of  currency  notes  of  any  kind  will  be  redeemable  at  the 
United  States  Treasury.  It  will  give,  practically,  final  gold  redemption 
at  the  national  clearing  house  in  ]Sew  York  and  redemption  in  legal- 
tender  notes  and  silver  at  country  banks." 

withdrawal   of    gold   FROM   BANKS. 

How  will  that  prevent  the  withdrawal  of  gold  fbr  shipment? 

Mr.  Eckels.  It  simply  would  make  tlu;  withdrawal  of  gold  I'rom  the 
banks  instead  of  from  the  Treasury.  That  is  the  whole  object  of  this 
bill.  One  of  the  principal  objects  of  this  bill  is  to  make  the  banks  the 
source  of  supply  for  the  gold  needed  for  business  purposes,  instead  of 
the  Treasury. 


FINANCIAL    AND    BANKING    SITUATION.  333 

Mr.  Calderhead,  I  iniderstaiid  that.  Now,  isn't  it  a  fact  tliat  from 
1878  until  the  time  when  the  Treasury  suspended  ^ohl  payments  of 
bahmces  at  the  clearinji-  house  in  Is^evv  York  the  gohl  withdrawn  was 
practically  withdrawn  from  banks? 

Mr.  EcjKELS.  Yes. 

Mr.  Calderhead.  Since  the  (iovernment  suspended  the  ])aymentin 
gold  of  its  balances  at  the  clearing  house  iu  New  York  the  gold  has^ 
been  withdrawn  from  the  Treasury? 

Mr.  Eckels.  Yes. 

Mr.  Calderhead.  Why  would  not  the  gold  still  be  withdrawn  from 
the  baiiks  if  the  Government  would  resume  the  payment  of  its  balances 
at  the  clearing  house  in  gold  f 

Mr.  Eckels.  Because  there  is  not  such  faith  in  the  credit  obligations 
of  the  Government  now  as  there  was  when  the  amount  of  them  was 
less  and  when  cu.stoms  duties  were  being  paid  in  gold  and  a  very  large 
gold  reserve  was  in  evidence  in  the  Treasury.  The  banks  then  knew  at 
any  time  they  wanted  to  take  their  legal  tenders  to  the  Treasury  they 
could  get  the  gold  in  exchange  therefor. 

Mr.  Calderhead.  Is  it  not  a  fact  that  from  1878  until  the  Govern- 
ment suspended  payment  of  its  balances  in  gold  the  people  paid  in 
gold? 

Mr.  Eckels.  Y"es;  because  the  individual  then  was  as  willing  to 
have  his  legal-tender  obligation,  which  he  felt  certain  would  be 
redeemed  in  gold  at  any  time  presented.  When,  however,  the  condi- 
tions changed,  he  felt  it  was  a  good  deal  better  to  have  his  gold,  and,  as 
he  could  pay  in  something  else,  he  preferred  to  pay  in  something  else. 

cause  of  suspension  of  gold  payments. 

Mr.  Calderhead.  What  was  the  cause  of  the  suspension  of  the 
payment  in  gold*? 

Mr.  Eckels.  I  think  the  suspension  of  the  payment  of  balances  in 
gold  arose  from  the  conditions  caused  by  the  increase  in  the  credit 
instruments  of  the  Government  without  a  corresponding  increase  iu  the 
required  means  of  meeting  them. 

Tlie  Chairman.  1  received  a  letter  from  Hon.  Charles  Foster,  ex- 
Secretarj^  of  the  Treasury,  which  indicated  that  this  ceasing  to  pay  the 
balances  in  gold  was  hardly  a  matter  that  came  to  his  or  anybody's 
cognizance.     It  grew  up  naturally  and  without  design. 

cessation  of  customs  payments  in  gold. 

Mr.  Brosius.  Mr.  Calderhead,  will  you  allow  me  to  supply  the  state- 
ment of  the  danger  on  that  point,  because  I  have  given  that  matter 
some  examination. 

Mr.  Calderhead.  Certainly. 

Mr.  Brosius.  The  fact  is  that  the  cessation  of  the  payment  bj^  the 
Treasury  of  the  balances  in  gold  followed  instead  of  preceded  the  cessa- 
tion of  the  payment  of  customs  in  gold.  In  other  words,  by  reason 
of  the  alarm  that  was  aroused  in  the  public  mind  for  reasons  we  all 
understand,  payments  of  customs  in  gold  began  to  fall  off,  and  it 
became  necessary  for  the  Government  to  cease  paying  its  balances  in 
gold.    The  point  is  to  get  the  order  of  precedence  correct. 

Mr.  Calderhead.  The  alarm  appears  to  have  existed  in  Mr.  Foster's 
mind  for  a  year  and  a  half  before  there  was  an  alarm  in  the  mind  of 
the  public,  and  he  curtailed  the  payments  in  gold  himself. 


334  FINANCIAL   AND    BANKING    SITUATION. 

Mr.  Brosius.  I  cau  show  my  friend  the  figures  as  I  have  them  of  the 
payment  of  customs  and  of  the  settlements  in  gokl,  and  it  demonstrates 
clearly  the  point. 

Mr.  Calderhead.  I  thought  I  was  speaking  from  the  figures  myself. 

As  a  final  question,  I  would  ask  you.  Mr.  Comptroller,  would  it  not 
relieve  the  Treasury,  would  not  the  surest  way  to  relieve  the  Treasury 
be,  to  resume  the  payment  of  balances  in  gold! 

Mr.  Eckels.  Provided  the  Treasury  has  gold. 

Mr.  Fo  v\'LER.  Assuming  that  were  done,  that  the  Government  should 
now  begin  to  settle  with  the  clearing  house  in  gold,  would  that  be  any 
reassurance  to  the  i)ublic  that  this  question  that  is  now  under  debate — 
whether  we  have  a  gold  standard  or  a  silver  standard — would  be  settled? 

Mr.  Eckels.  Xo;  I  think  not.  I  can  not  conceive  myself  of  why  the 
people  of  the  United  States  should  raise  any  objection  or  find  any  fault 
with  people  who  do  the  thing  which  the  Government  expects  them 
to  do,  in  demanding  continualiy  these  gold  redemptions  even  for  hoard- 
ing or  investing,  as  long  as  the  Government  keeps  out  the  means  of 
doing  it,  and  thus  declares  it  to  be  a  good  thing  for  the  Government. 
There  is  nothing  unpatriotic  about  it.     It  is  a  business  proposition. 

The  Chairman.  Mr.  Stallings  or  Mr.  Hendrick,  do  you  desire  to  ask 
any  questions? 

Mr.  Stallings  and  Mr.  Hendrick.  No,  sir. 

T^VO    KINDS    OF    REDEMPTION. 

Mr.  Spalding.  In  paragraph  8  of  Mr.  Walker's  argument  he  says: 

Under  the  proposed  bill  iiot  a  dollar  of  currency  notes  of  any  kind  will  be  redeem- 
able at  the  United  States  Treasury.  It  will  give,  practically,  final  gold  redemption 
at  the  national  clearing  house  in  New  York,  and  redemption  in  legal-tender  notes 
and  silver  at  country  banks. 

Just  above  that  he  says  that  under  the  present  law  practically  every 
dollar  of  the  81,000,000,000  in  currency  notes  is  redeemable  in  gold  at 
the  United  States  Treasury,  and  then  he  makes  the  statement  I  have 
just  quoted.  Would  not  that  make  two  kinds  of  redemption"?  I  am 
asking  for  information,  because  a  bank  that  would  pay  silver  in  one 
place  and  gold  in  another  place,  it  seems  to  me,  would  get  in  trouble. 

Mr.  Eckels.  I  think  that  is  a  question  Mr.  Walker  ought  to  answer. 

The  Chairman.  While  silver  dollars  are  a  legal  tender  and  the  bul- 
lion in  them  is  of  less  commercial  value  than  the  gold  in  a  gold  dollar, 
there  must  be  a  wide  discretion  allowed  banks  in  Avhat  they  will  redeem 
in,  and  the  present  law  does  not  provide  for  any  gold  redemption  any- 
where, except  in  New  York  and  San  Francisco.  The  proposition  is  that 
the  bankers  would  ordinarily  refuse  to  redeem  in  gold  anywhere,  except- 
ing when  the  necessities  of  a  customer  of  the  bank  requires  it,  except 
in  New  York  and  San  Francisco.  They  would  redeem  in  gold  to  no 
greater  extent  than  necessary  to  keep  all  kinds  of  money  at  a  parity. 

BANKS  REALLY  MAINTAIN  PARITY  OF  METALS. 

Mr.  Spalding.  I  wanted  to  know  whether,  under  that  bill,  it  would 
make  gold  in  New  York  and  silver  in  Kansas'? 

The  Chairman.  All  kinds  of  money  would  be  kept  at  a  par  in  Kansas. 

Mr.  Spalding.  At  the  present  time  the  Government  maintains  the 
parity  of  the  two  metals. 

The  Chairman.  Only  nominally.     The  banks  have  really  done  it. 

Mr.  Spalding.  The  Government  is  obliged  by  law  to  maintain  the 


FINANCIAL    AND    BANKING    SITUATION.  335 

parity  of  the  two  metals.  1  simply  stand  on  a  law.  Under  this  bill  you 
can  get  gold  in  New  York  but  you  can't  get  gold  in  Minnesota. 

The  Chairman.  You  can't  get  it  in  Minnesota  now. 

Mr.  Spalding.  Yes,  yon  can. 

The  Chairman.  No;  you  can  only  get  it  in  New  York,  but  ns  a 
matter  of  practice,  you  may — not  as  a  matter  of  legal  right. 

Mr.  Spalding.  Now,  you  are  discriminating  in  favor  of  New  York 
City.  It  seems  to  me  that  there  is  grave  doubt  about  this  being  a  bill 
that  will  give  satisfaction,  if  the  argument  which  you  have  made  here 
in  regard  to  the  bill  is  true.     You  may  be  mistaken  in  regard  to  the  bdl. 

The  Chairman.  No;  not  at  all. 

Mr.  Spalding.  That  would  make  gold  in  New  Y'^ork,  and  in  Kansas 
City,  where  there  is  an  immense  trade,  all  you  could  get  would  be  silver. 

The  Chairman.  If  there  are  no  further  questions  on  this  bill,  Mr. 
Cox's  bill  will  come  up  now. 

Mr.  Newlands.  I  Avanted  to  ask  a  few  questions  of  the  Comptroller 
Oil  this  bill. 

The  Chairman.  Perhaps  we  had  better  take  a  recess  now. 

Thereupon,  at  1.15  p.  m.  the  committee  adjourned  until  1.45  p.  m. 

AFTER   RECESS. 

The  committee  reassembled  at  1.45  p.  m. 

Mr.  Newlands.  I  have  a  few  questions  to  ask  Mr.  Eckels: 

Will  this  bill,  called  the  "  Walker  bill,"  do  away  with  the  issue  of  the 
United  States  bonds  for  gold  redemption? 

Mr.  Eckels.  Only  in  case  of  the  success  of  Mr.  Walker's  plan  to 
absorb  as  a  security  for  bank-note  issues  the  demand  obligations  of  the 
Government,  commonly  known  as  greenbacks  and  Sherman  notes. 

Mr.  Newlands.  And  Treasury  notes  also  ? 

Mr.  Eckels.  And  Treasury  notes ;  and  then  it  would  not  do  away 
with  bonds  if  circumstances  should  arise  whereby  the  silver  coin  should 
not  maintain  itself. 

Mr.  Newlands.  Do  you  think  the  obligation  of  the  Government 
would  exist  to  maintain  a  parity  of  silver  coin  with  gold  by  redemption 
in  gold? 

Mr.  Eckels.  Yes;  I  believe,  however,  if  it  was  manifest  that  the 
policy  of  the  Government  was  to  retire  tlie  obligations  of  which  I  have 
spoken,  there  would  not  be  the  danger  from  a  silver  coin  that  there  is 
now.  As  I  stated  the  other  day,  I  look  upon  this  silver  coin  as  credit 
currency  to  the  extent  of  the  difference  between  its  face  value  and  the 
intrinsic  value  of  the  metal  in  the  coin,  just  as  I  do  upon  these  other 
obligations.  Although  I  do  not  think  the  riddance  of  these  obligations 
would  entirely  do  away  with  the  necessity  of  the  maintenance  of  a 
reserve,  it  would  tend  to  do  so  to  a  very  great  extent.  It  certainly 
would  render  it  less  difdcult  and  less  expensive  as  well  as  less  uncer- 
tani. 

Mr.  Newlands.  There  might  be  a  possibility  of  the  necessity  of  the 
Government  maintaining  a  considerable  reserve  fund  in  gold  in  order 
to  redeem  silver  in  gold;  is  that  your  position? 

Mr.  Eckels.  Yes;  under  certain  circumstances. 

Mr.  Newlands.  Do  you  think  that  is  a  remote  or  near  possibility. 

Mr.  Eckels.  1  do  not  think  it  a  possibility  that  is  very  near,  if 
there  is  not  some  legislation  which  increases  the  silver  currency  of  the 
country.  In  connection  with  Mr.  Walker's  bill  it  might  be  stated  that 
he  makes  a  provision  whereby  there  shall  not  be  any  paper  currency  in 


336  FINANCIAL    AND    BANKING    SITUATION. 

circulation  less  than  a  553  bill,  his  idea  evidently  being  to  have  the  sil- 
ver dollar  circulate,  as  it  does  not  now  circulate.  I  think  he  also  pro- 
vides that  as  a  part  of  the  reserves  deposited  against  bank-note  issues, 
which  he  terms  greenbacks,  there  shall  be  a  certain  proportion  of  silver 
certificates,  or  there  may  be  a  part  in  coin.  I  do  not  think  there  is  the 
danger  from  the  silver  that  there  is  from  the  other  obligations  ^yhich  the 
Government  is  maintaining. 

JMr.  Newlands.  Outside  of  the  possibility  of  the  necessity  of  main- 
taining a  gold  reserve  for  the  gold  redemption  of  silver,  would  there  be, 
under  this  act,  any  necessity  for  the  issue  of  bonds  for  gold-redemption 
purposes  ? 

Mr.  Eckels.  Not  for  currency  redemption,  and  if  the  operation  of 
his  act  is  to  shut  up  these  legal  tenders  there  probably  would  not  have 
to  be  any  other  for  permanent  redemption.  The  tendency  would  be,  if 
the  people  felt  that  the  demand  obligations  of  the  Government  were 
not  being  currently  redeemed  by  the  Government,  to  return  to  the  pay- 
ment of  impost  duties  in  gold.  He  sijecifies  that  as  one  of  the  pro- 
visions of  his  bill  whereby,  I  take  it,  he  expects  to  accumulate  a  fund 
of  gold  for  the  permanent  redemption  of  these  notes. 

IMPRISONING   THE    CKEDIT   MONEY. 

Mr.  ]SIewlands.  Do  you  think  this  bill  would  be  elTective  in  impris- 
oning all  the  credit  money  of  the  United  States  except  the  silver  coin, 
which  you  characterize  as  credit  money  ? 

Mr.  Eckels.  I  would  not  want  to  pass  an  opinion  upon  this  subject 
unless  I  felt  certain  that  the  anticipation  of  Mr.  Walker  would  be  fnl- 
filled — that  the  banks  would  be  very  eager  to  go  into  his  proposed  sys- 
tem. The  matter  turns  on  whether  the  banks  Avould  want  to  go  into  it, 
and  it  would  not  be  effective  unless  the  banks  did  go  into  it. 

Mr.  Hill.  That  is,  unless  the  banks  took  hold  of  it  quite  universally. 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Does  this  act  in  any  way  compel  the  banks  to  take 
advantage  of  the  provision  or  carry  out  the  provisions  of  this  act? 

BILL    PERMISSIVE   AND   NOT   MANDATORY. 

Mr.  Eckels.  It  is  voluntary  with  them.  One  section  of  the  bill  gives 
them  the  option  of  voting  whether  they  shall  reorganize  under  this  pro- 
posed act  or  continue  under  the  present  one. 

Mr.  Hill.  But  they  lose  circulation  if  they  do  not  reorganize. 

Mr.  Fowler.  But  they  don't  have  to  go  in  1 

Mr.  P^CKELS.  Ko. 

Mr.  Newlands.  Would  a  national  bank  forfeit  its  charter  under  the 
provisions  of  this  bill  unless  it  went  in? 

Mr.  Eckels.  No;  I  understand  not. 

Mr.  N]<:wLANDS.  Then  I  would  ask  if  it  is  so  persuasive  in  its  features 
as  to  probal)ly  induce  the  banks  to  avail  themselves  of  its  provisions? 

Mr.  Eckels.  That  is  a  question  which  would  have  to  be  intelligently 
answered  by  the  banks  themselves.  Mr.  Walker's  calculation  is  that 
there  would  be  a  very  large  per  cent  of  profits  over  and  above  the  ])er 
cent  of  proiit  accruing  totlie  banks  at  present;  but  whether  or  not  the 
banks  would  agree  with  him  1  can  not  say. 

Mr.  Newlands.  In  your  Jndgment  would  it  be  persuasive? 

Mr.  Eckels.  I  could  not  say  as  to  that.  There  are,  as  I  have  said, 
some  very  excellent  features  in  the  bill,  but  as  to  whether  or  not  the 


FINANCIAL    AND    BANKING    SITUATION.  337 

banks  would  be  williug',  under  the  inducement  otiered,  to  take  the 
responsibility  of  these  redemptions  and  run  the  risk  of  having  a  doubt 
in  the  minds  of  the  public  because  of  so  radical  a  change,  is  a  pretty 
hard  question  for  me  to  answer. 
Mr.  Js[ewlands.  Is  there  a  risk  in  these  redemptions '. 

REDEMPTIONS   SAFELY   TRANSFERRED    TO   BANKS. 

Mr.  Eckels.  I  do  not  think,  myself,  there  is  any  risk  at  all  in 
transferring  the  redemptions  to  tlie  banks,  but  my  views  may  be  very 
much  more  radical  than  the  views  of  a  great  many  other  people,  espe- 
cially people  who,  in  the  general  care  of  business  matters,  do  not  view 
the  thing  from  the  same  standpi>int  that  I  view  it  from. 

Mr.  Newlands.  How  could  we  ascertain  whether  or  not  the  banks 
would  be  pursuaded  to  accept  the  provisions  of  this  act! 

Mr.  Eckels.  I  take  it  that  it  might  be  ascertained  if  in  the  first 
place  this  committee  was  pursuaded  to  report  it,  and  in  the  second 
place  if  it  could  get  through  Congress. 

Mr.  Kewlands.  Action  of  Congress  then  would  have  to  precede 
any  action  by  the  banks  themselves  as  to  whether  they  would  acquiesce 
in  its  i^rovisions? 

Mr.  Eckels.  Yes;  action  by  the  committee  would  have  to  be  first 
and  then  action  by  Congress,  because  I  take  it  tliat  every  member  of 
the  committee  would  want  to  ascertain  the  view  which  those  who  are 
expected  to  go  into  this  reorganized  scheme  held  of  it,  and  then  it 
would  have  to  be  gotten  through  Congress,  which  would  depend  largely 
upon  how  much  of  the  banking  interests  were  back  of  it  and  how 
much  public  sentiment  was  back  of  it. 

Mr.  Kewlands.  Then  I  take  it  that  tlie  individual  members  of  this 
committee  and  the  individual  Members  of  Congress  must  push  their  own 
inquiries  in  their  various  districts,  as  to  whether  the  provisions  of  this 
bill  will  be  acceptable  to  the  banks  ?  You  know  of  no  way  of  an  organ- 
ized method  by  which  the  banks,  in  anticipation  of  our  action,  can  indi- 
cate whether  or  not  they  will  accept  its  provisions? 

Mr.  Eckels.  I  do  not  know  of  any  way  of  ascertaining  how  this  bill 
would  be  viewed  except  in  the  way  I  have  indicated. 

PROVISIONS    advocated    BY    CONVENTIONS. 

Mr.  Newlands.  In  these  national-bank  conventions  has  there  been 
any  indication  that  the  provisions  of  this  bill  would  be  acceptable  to 
bankers? 

Mr.  Eckels.  The  provision  of  the  bill  as  to  the  issuing  of  notes  against 
assets  has  been  more  than  once  advocated  by  conventions.  That  was 
the  basis  of  the  plan  which  is  known  as  the  Baltimore  plan,  which  was 
presented  by  a  convention  of  bankers;  but  as  to  the  feature  of  the 
deposit  of  the  greenbacks,  that  has  never  been  passed  upon  by  a  con- 
vention. It  was,  however,  embodied  in  the  bill  which  was  presented  by 
the  Secretary  of  the  Treasury  two  years  since. 

Mr.  Newlands.  To  what  extent,  assuming  that  the  provisions  of 
this  bill  are  accepted,  not  only  by  the  national  banks,  but  by  the  State 
banks  of  the  country,  and  taking  into  consideration  tlie  present  condi- 
tions only,  and  not  future  enlargement  of  bank  capital,  to  what  extent 
can  currency  be  issued  under  this  law  ? 

Mr.  Eckles.  That  estimate  you  would  have  to  make  by  taking  the 
amount  of  the  present  banking  capital  and  figuring  the  percentages 
CUR 22 


338  FINANCIAL    AND    BANKING    SITUATION. 

provided  by  Mr.  Walker  to  be  deposited,  of  Treasury  issues — when  I 
use  that  term  I  embody  all  tlie  paper  issues  of  the  Treasury — and  the 
gold  and  silver  provided  to  be  deposited  by  these  banks.  That  is  a 
mathematical  calculation. 

PRESENT   BANKING   CAPITAL    OF   THE   UNITED   STATES. 

Mr.  Neavlands.  Do  you  know  to-day  what  the  total  amount  of  bank 
capital  in  the  United  States  is? 

Mr.  Eckels.  The  total  capital  of  all  the  banks,  or  at  least  of  almost 
10,000  banks  of  the  country,  as  shown  b}'  the  last  report,  was 
$1,049,371,724.  That  is  on  page  19  of  my  annual  report.  There  are 
in  addition  to  that  a  number  of  banks,  about  3,000  more,  most  of  them 
private  banks,  the  capital  of  which  I  have  not.  Then  there  was  a  sur- 
plus, $698,948,536. 

Mr.  Newlands.  What  are  the  limitations  with  reference  to  capital 
and  reserves  placed  by  this  act  upon  the  issues  of  bank  currency? 

Mr.  Eckels.  That  you  will  have  to  find  by  consulting  the  bill.  I  do 
not  carry  in  mind  the  distinctive  provisions  of  it. 

Mr.  ISTewlands.  The  purpose  of  this  is  to  get  at  what  amount  of 
bank  currency  can  be  issued. 

Mr.  Eckels.  You  will  find  the  proposition  set  forth  on  page  8,  sec- 
tion 5. 

Mr.  JSTewlands.  You  have  never  made  an  estimate  of  the  total 
amount ! 

Mr.  Eckels.  Of  "what  would  be  absorbed?    No. 

th:^ee  kinds  of  currency  provided. 

Mr.  Newlands.  As  I  understand  it,  there  are  three  kinds  of  bank 
currency  provided  for  by  this  act;  first,  legal-tender  notes,  with  green- 
backs ',  the  other  reserve  notes,  and  the  other  emergency  notes.  Is  that 
correct  *? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Under  this  act,  leaving  out  the  emergency  notes  for 
the  i)resent,  which  notes  would  be  greater  in  amount,  the  legal-tender 
notes  or  the  reserve  notes  ? 

Mr.  Eckels.  That  would  depend  on  how  much  reserve  is  held  by  the 
banks,  but  I  should  judge  that  the  amount  of  reserve  notes  would  be 
larger  than  the  amount  of  legal-tender  notes. 

government  as  a  redemption  agent. 

Mr.  Neavlands.  Now,  as  to  redemption,  Mr.  Eckels,  do  you  under- 
stand tliat  under  this  act  redemption  has  to  be  made  by  the  banks 
themselves,  or  by  the  (Jovernment  as  the  agent  of  the  bank? 

Mr.  Eckels.  1  understand  that  the  banks  are  to  furnish  tlie  gold  to 
the  Government,  together  with  whatever  else  is  provided  as  a  means 
of  redemption,  and  that  the  Government  itself,  as  it  does  now,  acts 
only  as  an  agent. 

Mr.  FoAVLER.  As  it  does  for  national-bank  notes? 

Mr.  Eckels.  Yes;  as  it  does  for  the  national-bank  notes. 

Mr.  Hendrick.  1  would  like  to  ask  one  question  there.  I  understood 
you  to  say  the  other  day  that  one  of  the  chief  sources  of  trouble  now 
arises  from  the  fact  that  the  (xovernment  is  constantly  called  upon  to 
redeem  these  legal  tenders,  and  that  wlienever  that  is  the  case  the 
public  are  aware  of  that  fact;  that  that  very  knowledge  on  the  part  of 


FINANCIAL   AND    BANKING    SITUATION.  339 

the  public  creates  a  distrust  and  a  disturbance.  Now,  would  not  that 
still  be  the  case  under  Mr.  Walker's  bill;  if  the  money — the  gold — is  to 
go  from  the  banks  into  the  Treasury,  would  not  the  public  always  know 
when  there  was  a  deficiency  and  when  there  had  been  a  demand  on  the 
banks  by  the  Treasury  for  gold "? 

METHOD  OF  REDEMPTION  NOT  CHANGED. 

Mr.  Eckels.  No;  the  difference  is,  in  the  one  instance  the  Govern 
ment  itself  has  to  supply  the  gold  by  the  limited  means  which  the  Gov- 
ernment has  in  its  power,  and  in  the  redemption  which  is  })rovided  for, 
while  under  Mr.  Walker's  plan  the  banks  supply  that  gold.  For  exam- 
ple, there  is  no  one  ever  disturbed  now  about  the  current  redemption 
of  bank  notes,  because  the  banks  supply  a  fund  to  the  Government  and 
the  Government  simply  acts  as  the  agent,  and  1  do  not  see  any  differ- 
ence between  the  method  of  redeeming  the  banknotes  under  the  provi- 
sion of  this  bill  and  the  present  method  of  the  redemption  of  bank  notes. 
Under  the  present  method  the  redemption  of  bank  notes  does  not 
disturb  the  business  of  the  country  at  all.  It  is  the  redemption  of  the 
notes  for  whose  redemption  the  Government  itself  has  to  supply  the 
gold  that  creates  a  disturbance. 

TREASURY  AS  AN  AGENT  OF  BANKS. 

Mr.  Brosius,  Is  it  speaking  correctly  to  say  that  the  Treasury  or  the 
Government  acts  as  the  agent  of  the  banks  ? 

Mr.  Eckels.  I  think  that  is  what  it  does. 

Mr.  Brosius.  If  there  is  an  agency,  that  imi3lies  a  principle  with 
tlie  power  to  constitute  an  agent;  but  in  this  case  the  law  declares  that 
the  Treasury  shall  do  so  and  so,  and  that  the  banks  shall  do  so  and 
so,  and  it  does  not  seem  correct  to  say  that  the  Treasury  is  the  agent  or 
is  inferior  to  the  banks,  and  carrying  out  the  banks'  direction  is  an 
agency. 

Mr.  Eckels.  If  technically  it  is  not  correct,  it  is  in  fact,  because  that 
is  all  the  Treasury  does.  It  takes  this  money  which  the  banks  supply 
and  pays  it  out. 

Mr.  Xewlands.  Are  the  banks  under  this  act  compelled  to  make 
redemption  over  their  counters  at  all  ? 

Mr.  Eckels.  I  think  there  is  a  provision  to  that  effect.  The  provision 
is  that  notes  shall  be  redeemed  in  lawful  money  at  the  bank  counters, 

Mr.  Newlands.  Let  us  refer  to  that  section  now. 

Mr.  Hill.  On  pige  21,  beginning  at  section  37,  the  subject  of  redemp- 
tion and  maintenance  of  reserve  will  be  found.  Section  39,  I  think,  is 
the  one  you  specially  refer  to — 38  and  39. 

Mr.  Newlands.  Do  you  understand  that  under  section  39  of  the 
Walker  bill  the  bank  is  compelled  to  make  redemption  of  its  notes? 

Mr.  Eckels.  Yes;  that  is  my  understanding.  I  was  under  the 
impression  that  there  was  a  distinctive  provision  on  the  subject. 

Mr.  Fowler.  There  is  some  section  that  provides  it  shall  be  in  silver 
or  in  these  notes,  but  that  is  all  there  is  to  it. 

MAINTAINING   GOLD   REDEMPTION   OF   NOTES. 

Mr.  Eckels.  Whether  or  not  there  is  a  provision,  I  think  there 
should  be  a  provision  that  the  banks  should  hold  themselves  ready  to 
redeem  their  own  notes  at  their  bank  counters  if  necessary. 


340  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  ^EWLANDS.  lu  what? 

Mr.  Eckels.  In  sold. 

Mr.  Xewlands.  In  gold  alone? 

Mr.  Eckels.  I  would  not  permit  any  bank  to  issue  notes  if  it  did  not 
stand  ready  to  redeem  in  gold,  if  the  man  who  held  the  note  wanted 
gold. 

]\Ir.  Newlands.  But  you  are  not  prepared  to  say  that  this  Ijill  pro- 
vides for  such  gold  redemption  ? 

Mr.  Eckels.  I  think  it  provides  that  the  ultimate  redemption  shall 
be  in  gold,  and  there  may  be  a  current  redemption  in  something  else, 
but  there  is  a  provision  that  the  bank  at  all  times  has  to  maintain  the 
parity  of  tlie  various  forms  of  monej^,  which  is  simply  a  way  of  indi- 
rectly saying  that  it  must  maintain  gold  payments. 

Mr,  Xewla^'DS.  I  will  bring  you  to  that  section — section  50, 1  believe 
that  is.     What  is  your  construction  of  that  section  ! 

Mr.  Eckels.  My  construction  of  that  section  is  that  it  means  the 
maintenance  of  gold  payments  of  notes. 

Mr.  Newlands.  Section  50  is  as  follows : 

Sec.  50.  That  any  uatioDal-bankiug  association  that  fails  to  keep,  use,  and  pay 
out  its  silver  coin  and  gold  coin  and  currency  notes  so  as  to  keep  all  three  kinds  of 
money  at  a  parity  each  with  all  the  others  shall  be  deemed  to  have  failed  to  pay  in 
coin  or  coin  certificates  on  demand  the  greenbacks  and  reserve  notes  or  other  notes 
signed  and  issued  by  its  officers. 

Now,  I  ask  you  what  your  construction  is  there  as  to  what  would  be 
required  in  order  to  maintain  the  parity? 

Mr.  Eckels.  My  construction  of  that  section  would  be  the  con- 
struction I  place  upon  the  present  duties,  under  existing  law,  of  the 
Secretary  of  the  Treasury — that  the  parity  of  the  moneys  in  circulation 
must  be  maintained,  and  that  if  anj'body  wants  gold  it  is  the  duty  of 
the  Government  to  pay  gold.  What  Mr.  Walker's  construction  is  I 
can  not  say,  but  that  is  the  construction  I  would  place  upon  it. 

The  Chairman.  That  is  my  construction.  It  means  that  the  banks 
shall  maintain  it  just  as  the  Government  does — take  the  place  of  the 
Government. 

Mr.  ISTewlands.  Then,  according  to  your  view,  that  would  require 
gold  redemption  by  the  banks  of  silver  coins,  as  well  as  of  the  notes  of 
the  banks,  whether  legal-tender  or  reserve  notes,  just  as  redemption  is 
now  made  of  the  greenbacks  by  the  Treasury  Deiiartmenf? 

Mr.  Eckels.  Only  to  the  extent,  Mr.  Newlands,  that  the  banks  had 
deposited  and  the  Government  had  accepted  these  various  forms  of 
credit  currency  by  the  banks.  It  would  never  redeem  any  notes  not 
issued  by  the  banks. 

Mr.  Newlands.  Only  its  own  notes? 

Mr.  Eckels.  Only  its  own  notes. 

Mr.  Newlands.  And  the  Treasury  Departinent  has  to  redeem  the 
notes  of  all  banks  lu  gold  ? 

Mr,  Eckels.  It  would  redeem  all  notes  that  the  banks  issued,  but 
the  redemi)tion  is  to  be  made  out  of  a  fund  provided  by  the  banks,  not 
by  the  Government — that  is,  the  current  redemption — and  if  there  was 
a  failure  of  the  bank  to  provide  that  fund  for  current  redemption  ])ur- 
poses,  then  the  bank  would  be  dec^lared  insolvent  and  its  assets  taken 
to  first  i)ay  its  obligations  to  the  Government,  in  the  meantime  the 
Government,  under  its  guarantee,  making  these  redemptions  of  the 
notes  of  the  failed  bank  out  of  the  Government's  fund. 

Mr.  Newlands.  J)o  you  understand  that  this  action  would  give  the 
holder  of  the  bank  note  the  option  to  demand  from  the  bank  the  gold 
or  silver,  or  would  the  bank  have  the  option,  assuming  that  in  the 


FINANCIAL   AND    BANKING    SITUATION.  341 

markets  of  the  country  tliey  had  an  exchangeable  value,  and  that  one 
was  not  at  a  discount  as  measured  in  the  other? 

Mr.  Eckels.  1  think  the  holder  of  the  note  would  have  the  option. 
I  believe  that  would  be  an  element  entering  into  the  contract  between 
the  bank  and  the  holder  of  the  note,  just  as  that  element  enters  into 
the  contract  between  the  Government  now  and  the  holder  of  the  demand 
obligation  of  the  Government,  which  reads  payable  in  coin. 

Mr.  Xewlands.  Is  that  correct,  according  to  your  idea,  Mr.  Walker? 

The  Chairman.  The  holder  of  the  note  has  a  right  under  this  con- 
tract to  have  his  money  kept  at  apftr  with  gold,  and  he  would  not  have 
the  right  to  demand  gold.  That  would  be  with  the  option  of  the  bank; 
but  if  the  bank  refused  gold  in  such  manner  as  to  put  gold  at  a  pre- 
mium, then  the  bank  would  be  insolvent;  just  as  the  Bank  of  France 
or  the  Bank  of  Germany  do  to  day;  you  can  not  get  gold  there  unless 
your  business  requires  it. 

Mr.  Eckels.  Except  as  is  paid  a  very  slight  expense,  which  it  costs 
the  Bank  of  France  to  collect  it  together.  This  payment  is  as  an  agency 
fee. 

The  Chairman.  Certainly. 

Mr.  Xewlands.  Then  your  construction  differs  from  the  author  of 
the  bill  as  to  the  meaning  of  this  section ! 

Mr.  Eckels.  To  the  extent  that  I  do  not  think  you  do  maintain  the 
parity  of  the  moneys  unless  you  pay  the  money  out  that  the  man  who 
holds  the  note  wishes  to  be  paid  to  him. 

Mr.  Newlands.  Whereas  Mr.  Walker  contends  that  so  long  as  gold 
and  silver  have  an  interchangeable  value  in  the  country  and  by  the 
action  of  the  banks  silver  is  not  i^ut  at  a  discount,  the  bank  has  the 
option  of  paying  in  either  gold  or  silver;  and  if  by  its  action  silver  is 
put  at  a  discount  or  gold  at  a  premium,  then  the  bank  must  pay  in  gold 
or  be  guilty  of  an  act  of  insolvency. 

Mr.  Eckels.  But  the  question  of  the  exercise  of  the  option  could 
not  arise  as  long  as  these  dollars  were  at  a  parity  and  were  interchange- 
able without  loss  to  either  party.  If,  however,  circumstances  did  arise 
under  which  these  dollars  of  gold  and  silver  were  not  interchangeable 
without  loss,  the  bank  would  not  have  an  option  under  a  proper  system, 
but  the  note  holder  would  have  the  right  to  demand  the  metal  he  desires. 

The  Chairman.  That  is  my  position  exactly. 

Mr.  Eckels.  That  he  would  have  aright  to  demand  that  these  notes 
be  paid  in  that  metal  which  sustains  itself,  being  gold. 

Mr.  !Newlands.  But  I  understand  you  to  contend  that  the  same  con- 
struction should  be  given  to  the  parity  clause  of  this  bill  as  is  given  by 
the  Secretary  of  the  Treasury  to  the  parity  clause  in  the  Federal  law. 

Mr.  Eckels.  That  is  the  construction  that  I  would  place  upon  it. 

Mr.  IS^EWLANDS.  Then,  according  to  that,  redemption  in  silver  or  gold 
at  the  option  of  the  holder  would  be  required,  even  before  they  had 
parted  as  to  interchangeable  value,  would  it  not? 

Mr.  Eckels.  Yes;  if  any  man  had  a  note  and  wanted  it  redeemed  in 
go.ld,  he  ought  to  be  entitled  to  demand  of  the  bank  that  he  be  paid  in 
gold. 

Mr.  Newlands.  So  that  would  be  your  construction  of  this  section  ? 

Mr.  Eckels.  Yes. 

Mr.  Van  Voorhis.  In  other  words,  refusal  to  pay  gold  would  of  itself 
work  the  differentiation. 

Mr.  Newlands.  Now,  Mr.  Comptroller,  what  construction  do  you  put 
upon  section  7,  which  reads  as  follows : 

That  no  banking  association  shall  plead  in  defense  in  any  action  lirought  against 
it  that  any  note  issued  by  it  is  a  United  States  legal-tender  note. 


342  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  I  suppose  that  is  to  prevent  the  bank  from  taking 
advantage  of  making-  a  legal  tender  of  its  own  notes,  largely. 

Mv.  Newlands.  lUit  that  defense  can  be  made  by  a  bank  as  to  a  note 
issued  by  any  other  bank. 

The  Chairman.  That  is  it  exactly. 

Mr.  Eckels.  Yes. 

EFFECT  OF  H.  R.  171  OX  SILVER. 

Mr.  Newlanbs.  Now,  Mr.  Eckels,  we  will  assume  that  this  law  goes 
into  operation — that  it  is  accepted  by  the  banking  sentiment  of  the 
country — that  the  greenbacks.  Treasury  notes,  and  silver  certilicales 
are  imprisoned,  and  that  bank  currency,  either  legal-tender  notes  or 
reserve  notes,  is  issued.  Where,  under  those  conditions,  Avould  the 
Silver  in  the  country  be — the  silver  that  is  now  in  the  Treasury  of  the 
United  States? 

^Ir.  Eckels.  Well,  if  the  silver  certiticates  are  used  as  a  part  of  your 
basis  of  note  circulation,  it  would  be  in  the  same  position  that  it  is 
now — the  holders  of  the  silver  certificates  would  be  entitled  to  the 
silver  standing  back  of  tliose  certificates. 

Mr.  Newlands.  When  you  speak  ot  holding  silver  certificates  in 
reserve,  you  mean  the  leserves  of  the  banks'? 

Mr.  Eckels.  The  bill  i^rovides  that  for  the  issuance  of  these  green- 
back notes  there  shall  be  deposited  coin,  silver,  and  silver  certificates, 
and  the  bank  to  comply  with  that  provision  must  first  obtain  the  silver 
certificates,  and  those  silver  certificates  would  transfer  the  ownership 
of  so  many  silver  dollars  into  the  banks,  which  representatives  of  own- 
ership would  be  deposited  with  the  Government. 

Mr.  Kewlands.  So,  after  such  silver  certificates  go  into  the  posses- 
sion of  the  Government  they  are  destroyed,  under  the  provision  of 
this  act? 

Mr.  Eckels.  Yes,  they  are  destroyed:  but  destroyed  during  the 
period  of  time  in  which  they  are  there  imprisoned,  and  after  that,  if  I 
understand  it,  it  is  the  design  .of  the  bill  to  substitute  for  so  much  of 
them  as  are  deposited,  gold  coin,  by  the  ultimate  redemption  of  the 
notes. 

]\Ir.  Newlands.  Substitute  where? 

Mr.  Eckels.  To  the  holders  of  the  certificates  of  the  greenback  notes 
issued. 

^Ir.  Newlands.  TUit  1  understand  the  purpose  of  this  act  is  to 
iMii)rison  first  all  this  credit  money  of  the  United  States  excepting, 
perhaps,  silver. 

The  Chairman.  What  do  you  mean  by  impiison*? 

Mr.  Newlands.  That  is  the  word  used  by  Mr.  Eckels. 

The  Chairman.  After  the  bank  takes  it  and  pays  it  in  circulation, 
it  is  just  the  same  as  now. 

Mr.  J^^ckels.  The  basis  of  your  issue,  Mr.  Walker,  as  1  understand 
it,  is  that  you  have  the  banks  deposit  so  much  of  these  notes  witli  the 
Ceneral  Government. 

The  Chairman.  They  destroy  them  and  put  new  notes  in  circulation. 
It  is  not  ini])risoned  at  all. 

]\Ir,  Newlands.  Now,  we  will  assume  that  all  the  greenbacks  and 
tlie  Treasury  notes  and  silver  certificates  are  gathered  up  in  this  way 
by  the  banks  and  are  deitosited  with  the  United  States  Government  as 
a  basis  of  cuirency.  Then  1  understand  you  to  say  that  all  that  paper 
would  be  destroyed  by  the  Government? 


FINANCIAL    AND    BANKING    SITUATION.  343 

Mr.  Eckels.  Yes;  but  other  paper  issued  in  lieu  of  it  through  the 
bank. 

Mr.  Newlands.  But  pai)er  issued  in  lieu  of  it  would  be  bank  paper. 

The  Chaikman.  But  legal-tender  notes  just  the  same. 

Mr.  Eckels.  But  right  there,  Mr.  I^ewlands,  1  take  it  the  expecta- 
tion of  Mr.  Walker  is  that  that  section  of  the  bill  which  provides  that 
no  notes  shall  be  issued  below  83,  by  the  banks  or  by  the  Goverment, 
will  release  a  large  amount  of  silver  coin  dollars  which  the  people 
would  be  willing  to  carry  around  for  use  in  daily  transactions. 

Mr.  Newlands.  What  amount  would  that  release? 

Mr.  Eckels.  I  suppose  to  the  extent  that  one  and  two  dollar  bills 
are  in  circulation  now. 

Mr.  Brosius.  Under  this  bill,  when  it  comes  in  to  complete  the 
effective  operation,  there  would  be  no  silver  certiflcates. 

Mr.  Newlands.  Can  you  tell  me  to  what  extent  the  place  of  one  and 
two  dollar  notes  would  be  taken  by  silver? 

Mr.  Eckels.  Mr.  Walker  stated  that  the  Treasury  report  of  1895 
shows  there  were  one  and  two  dollar  bills  to  the  extent  of  $74,CG8,926 
in  circulation. 

Mr.  Newlands.  That  would  leave  in  the  United  States,  in  existence, 
about  $400,000,000  of  silver  coin  and  bullion  ? 

Mr.  Eckels.  Yes. 

SILVER    FORCED    INTO    CIRCULATION. 

Mr.  Newlands.  Taking  into  consideration  the  silver  now  in  actual 
circulation — the  silver  that  would  be  forced  into  actual  circulation  by 
the  retirement  of  the  one  and  two  dollar  notes — we  would  have  a  bal- 
ance of  silver  somewhere  in  the  country  of  about  $400,000,000  ? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  Where,  under  the  provisions  of  this  bill,  would  that 
silver  be? 

Mr.  Eckels.  So  much  of  it  as  is  represented  by  Treasury  notes  and 
sdver  certificates  in  sums  above  S3  would,  to  the  extent  that  the  banks 
went  into  the  system  and  took  out  circulation,  be  locked  up,  and  instead 
these  greenback  issues  provided  for  in  Mr.  Walker's  bill  would  take 
their  place. 

Mr.  Newlands.  Where  would  it  be  locked  up? 

Mr.  Eckels.  It  would  be  locked  up  in  the  Treasury,  subtreasuries,  or 
wherever  provided. 

Mr.  Newlands.  Is  there  any  provision 

Mr.  Eckels.  It  provides  that  the  banks  shall  deposit  with  the  Treas- 
ury of  the  United  States  under  section  5,  page  8. 

Mr.  Newlands.  Shall  deposit  these  silver  certiflcates  and  Treasury 
notes — greenbacks — is  that  it? 

Mr.  Eckels.  Section  5  provides  as  follows: 

Sec.  5.  Tbat  every  association  oriianizecl  under  this  act,  before  it  shall  be  author- 
ized to  commence  a  banking  business,  shall  deliver  to  the  Treasury  of  the  United 
States  United  States  legal-tender  notes,  including  Treasury  notes,  or  coin,  or  coin 
certificates,  or  mixed,  as  provided  in  section  six,  in  amounts  as  follows: 

Section  6  provides  what  the  percentage  shall  be  of  each. 

Mr.  Newlands.  That  is  true,  so  far  as  the  Treasury  notes,  coin,  coin 
certificates,  or  mixed  that  are  surrendered  by  the  banks  as  a  basis  of 
the  issue  of  currency.  Now,  after  that  surrender  takes  place,  and  after 
the  silver  certificates  and  the  Treasury  notes  and  the  greenbacks  are 
destroyed,  where  is  the  silver  which  these  silver  certificates  and  Treasury 
notes  represent? 


344  FINANCIAL    AND    IJANKING    SITUATION. 

Mr.  Eckels.  It  is  just  Avheie  it  is  now. 

'My.  Xewlands.  Where  it  is  now — in  tlie  Treasury  of  the  Uuited 
States  ? 

Mr.  Eckels.  Yes. 

Mr.  I^^E^VLANDS.  Tnder  this  bill  would  it  remain  in  tlie  Treasury  of 
the  United  States  ? 

Mr.  Eckels.  I  think  that  it  would.  Such  is  my  understanding,  at 
least. 

Mr.  Xewlands.  After  the  bill  went  into  operation  and  its  provisions 
were  accepted  by  the  banks,  I  understand  Mi-.  JCckels  to  say  that  the 
silver  now  standing  back  of  the  Treasury  notes  and  the  silver  certifi- 
cates— which  would  be  destroyed  in  case  the  bank  bill  goes  into  opera- 
tion— would  remain  in  the  Treasury. 

The  CnAiR:MAN.  How,  when  the  bill  provides  a  note  shall  be  paid  out 
for  every  silver  certificate  and  note  destroyed? 

Mr.  Newlands.  I  was  asking  Mr.  Eckels  his  construction  of  this. 

Mr.  Eckels.  1  take  it  that  the  Treasury  notes  and  the  silver  certifi- 
cates and  the  coins,  etc.,  that  the  bill  provides  as  security  for  part  of 
the  circulation  shall  be  given  to  the  Uuited  States  as  security  for  green- 
back notes — shall  remain  with  the  Treasury  of  the  United  States. 

The  Chair:man.  No;  it  is  paid  in  as  free  money  in  the  Treasury,  to 
be  used  in  the  Treasury. 

Mr.  Eckels.  It  does  not  make  any  difference  whether  it  is  a  special 
fund  or  among  the  free  moneys;  but  it  can  only  be  gotten  at  by  the 
redemption  of  something. 

The  Chairman.  Oh,  no;  the  silver  is  paid  out  when  the  silver 
certificates  that  were  issued  for  it  are  destroyed. 

Mr.  Newlands.  Is  that  your  understanding  of  the  bill,  Mr.  Eckels, 
that  this  .*$400,000,0()0  of  silver  which  formerly  backed  silver  certificates 
and  Treasury  notes,  will  go  into  the  general  fund  of  the  Treasury  to  be 
paid  out  in  the  payment  of  the  current  obligations  of  the  Treasury 
Department? 

^Ir.  Eckels.  Mr.  Walker  makes  that  explanation  of  the  bill. 

The  Chairman.  That  is  thci  text  of  the  bill— not  that  the  Treasury 
shall  pay  them  out,  but  he  shall  destroy  the  certificates  and  pay  out  in 
dollars;  that  is,  pay  the  silver  right  out. 

Mr.  iOcKELS.  But  as  I  understand  it,  this  stands  back  of  the  Treasury 
of  the  United  States  as  a  guaranty. 

The  Chairman.  Not  until  it  is  paid  right  in.  The  silver  certificates 
are  destroyed  and  the  gold  certificates  are  destroyed.  That  pays  the 
gold  and  silver  out,  instead  of  ])utting  the  certificates  into  circulation 
again.  Every  certificate  that  is  paid  in  is  destroyed  and  that  leaves 
the  money  free  in  the  Treasury  to  be  paid  out.  That  is  what  the  bill 
says.  It  does  not  contain  the  words  "free  to  be  paid  out,"  because 
that  is  not  necessary. 

Mr.  Newlands.  So  I  understand  that  when  the  gold  certificates  and 
the  silver  certificates  are  surrendered  to  the  United  States  Treasury 
the  banks  which  enter  those  certificates  take  out  the  coin? 

The  CiiAuiMAN.  Yes,  sir. 

Mr.  Newlands.  Then  they  also  take  out  legal-tender  notes  and 
reserve  notes  in  addition? 

The  Chair:man.  They  take  out  legal-tender  notes,  $100  for  every 
$100  of  lawful  money  they  j^ay  in,  simply  for  the  purpose  of  identify- 
ing what  bills  each  bank  shall  redeem. 

Mr.  Ni'AVLANDS.  Then  you  are  mistaken  in  the  statement  that  this 
8400,000,000  of  silver  would  remaiu  in  the  Treasury! 


FINANCIAL    AND    BANKING    SITUATION.  345 

Mr.  Eckels.  Under  Mr.  Walker's  explanation,  and  he  of  course 
knows  better  the  provision  of  the  bill  than  I  do. 

Mr.  Newlands.  I  was  asking  your  construction  of  this  act,  because 
we  wanted  to  know  your  views  with  rej^ard  to  it. 

Mr.  Eckels.  What  section  is  that,  Mr.  Newlands? 

Mr.  Newlands.  Look  at  section  21,  Mr.  Eckels,  if  you  please. 

Mr.  Eckels.  Yes. 

Mr.  I^"ewlands.  Do  you  understand  that  under  that  provision  the 
silver  backing  the  silver  certificates  which  are  surrendered  to  the  Treas- 
ury, and  by  the  Treasury  Department  destroyed,  is  to  be  turned  over 
to  the  banks  surrendering  the  silver  certificates,  or  is  it  to  remain  in  the 
Treasury  of  the  United  States  ? 

The  Chairman.  It  is  to  remain  free  money  in  the  Treasury,  paid  out 
on  certificates  or  paid  out  for  any  dues. 

Mr.  Eckels.  My  understanding  was  that  it  would  remain  in  the 
Treasury,  whether  it  went  into  a  special  fund  or  whether  it  went  into  a 
general  fund — that  it  still  remained  as  a  security. 

The  Chairman.  Have  you  read  the  language — that  is  not  it  at  all. 

Mr.  Eckels.  For  these  greenback  notes  issued  on  which  the  Gov- 
ernment makes  its  guaranty"? 

The  Chairman.  They  are  destroyed  and  all  the  money  that  these 
certificates  are  issued  for  are  free  moneys  in  the  Treasury. 

Mr.  Eckels.  But  do  they  still  remain,  Mr.  Walker,  to  be  used  for 
whatever  purposes  the  Treasury  sees  fit? 

The  Chairman.  Certainly ;  the  coin — gold  or  silver. 

Mr.  Eckels.  What  I  am  trying  to  say  is  upon  the  point  of  the 
deposit  of  the  certificates — the  silver  or  the  gold  for  which  those  cer- 
tificates are  issued.     Is  it  not  turned  over  to  the  banks'? 

The  Chairman.  Oh  no,  unless  they  exchange  it. 

Mr.  Eckels  (continuing).  But  remains  in  the  Treasury? 

Mr.  I^^ewlands.  It  remains  in  the  Treasury. 

Mr.  Eckels.  Mr.  Walker  says  that  it  is  a  provision  of  his  bill  that 
this  is  to  remain  as  free  money  in  the  Treasury  to  be  used  for  any  pur- 
pose possible,  but  the  banks  do  not  have  the  greenbacks  to  which  they 
are  entitled  under  the  bill,  and  also  the  gold  or  the  silver  for  which 
those  greenbacks  stand,  any  more  than  they  have  the  silver  certificates 
now  and  the  silver  coin  standing  back  of  them. 

Mr.  Newlands.  But  as  to  those  greenbacks — their  redemption  is 
backed  by  the  banks,  is  it  not,  and  not  the  Government  5  that  is,  the 
bank  is  the  obligor  and  not  the  Government. 

Mr.  Eckels.  The  current  redemption  of  them ;  yes. 

Mr.  Newlands.  Well,  then,  how,  in  that  case,  does  the  bank  get  an 
equivalent  for  the  silver  certificates  which  it  has  surrendered"?  The 
bank  notes,  as  I  understand  it,  are  not  Government  notes ;  they  are  bank 
notes,  and  the  bank  is  the  obligor.  Now,  the  bank,  the  owner  of  the 
silver  certificates,  surrenders  those  silver  certificates  and  gets  what — 
simply  its  own  notes? 

Mr.  Eckels.  I  judge  that  the  expected  advantage  to  the  banks  under 
the  plan  would  be  this,  that  they  deposit  1 00  cents  worth  of  paper,  gold 
or  silver,  and  they  get  instead  of  that  a  bill  calling  for  100  cents.  They 
obligate  themselves  to  currently  redeem  that  obligation  in  gold,  because 
of  the  additional  profit  of  having  given  to  them  100  cents  against  a 
security  worth  100  cents,  instead  of  being  as  now,  given  90  cents  for  a 
security  in  the  shape  of  a  bond  worth  110  or  115  cents.  In  addition, 
for  doing  this  they  are  permitted  to  issue  a  certain  amount  of  notes 
against  assets,  without  a  deposit  of  security.  I  suppose  that  is  the  way 
the  estimate  has  been  made  as  to  the  profit  upon  these  notes. 


346  FINANCIAL    AND    BANKING    SITUATION. 


CURRENT   AND   FINAL   REDEIVIPTION. 

]\rr.  Xewlands.  Do  you  tlistinguisli  at  all  between  ciu-reut  redemp- 
tion and  ultimate  redemption  as  to  the  obligor? 

Mr.  Eckels.  Yes. 

Mr.  Newlands.  With  referen<;e  to  the  current  redemption,  the  bank 
undertakes  to  do  that;  who  undertakes  the  ultimate  redemption  of  the 
notes? 

Mr,  Eckels.  The  notes  known  as  greenback  notes  are  simply  the 
substitution  of  an  obligation  which  now  rests  u])on  the  Government, 
and  wliich  the  Government  is  bound  to  ultimately  redeem,  so  that  the 
Government  is  only  compelled  to  redeem  those  notes  when  the  banks 
go  out  of  existence,  instead  of  being  compelled  to  redeem  them  both 
when  it  goes  out  of  existence  and  currently.  The  reserve  notes  are 
currently  redeemed  by  the  bank  and  only  ultimately  redeemed  by  the 
Government  in  case  the  bank  fails,  at  which  time  the  guaranty  of  the 
Government  intervenes,  and  the  Government  recoups  itself  for  having 
taken  care  of  the  ultimate  redemption  of  the  reserve  notes  by  hav- 
ing the  assets  of  the  bank  placed  at  its  disposal  for  the  payment  of 
such  notes. 

Mr.  Ke^\^lands.  1  understand  you  now.  Then  there  is  a  difference 
as  to  the  ultimate  redem^jtion  between  the  reserve  notes  and  the  ulti- 
mate redemption  of  the  greenbacks  under  this  act? 

Mr.  Eckels.  Ko;  except 

Mr.  Newlands.  That  is  to  say,  that  when  the  end  of  that  note  is 
reached,  the  Government  itself  redeems  the  legal-tender  note  without 
calling  upon  the  bank  in  anyway,  while  as  to  the  reserve  notes  the 
Government  redeems  them,  but  recoups  itself  with  that  redemption  out 
of  the  bank  assets. 

Mr.  Eckels.  It  redeems  the  reserve  notes  only  of  banks  which  fail. 
The  other  notes  the  bank,  if  solvent  when  it  goes  out  of  business, 
redeems,  or  when  it  does  not  wish  those  notes  to  be  in  issue  any  longer 
it  redeems  them. 

Mr.  Newlands.  Does  the  bank  redeem  its  legal-tender  notes  when 
it  goes  out  of  business? 

Mr.  Eckels.  Oh,  no;  as  to  the  greenback  notes,  as  I  understand  it, 
the  ultimate  redemption  rests  upon  the  Government. 

Mr.  Newlands.  Let  us  use  the  words  legal-tender  notes. 

Mr.  Eckels.  The  legal-tender  notes,  as  I  understand  it,  are  currently 
redeemed  by  the  banks  and  ultimately  redeemed  by  the  Government, 
because  they  are  an  ah^eady  duo  obligation  of  the  Government.  The 
reserve  notes  are  currently  redeemed  by  the  bank  and  ultimately 
redeemed  by  the  bank,  excepting  in  the  case  of  the  failure  of  the  bank, 
when  the  Government  intervenes  and  redeems  these  notes  and  recoups 
itself  from  the  failed  bank's  assets. 

Mr.  Newlands.  So,  by  that  ])rocess,  the  silver  becomes  and  the  silver 
certiticate  becomes  free  coin  in  the  Treasury  and  can  be  ])aid  out  by 
the  (iovernment  in  its  current  expenses? 

Mr.  Eckels.  Yes;  the  befietit  under  Mr.  Walker's  explanation,  I 
believe,  is  ligured  that  what  the  Government  receives  outside  of  not 
having  to  make  current  redemption,  it  has  this  nuich  fund  of  money  to 
use  for  its  current  needs,  whereas  now  it  can  not  have  any  daily  benefit 
of  the  bonds,  whicli  are  deposited  as  security. 

Mr.  Newi-ANDs.  What  would  the  elfect  o^"  that  process  be;  would 
the  Government  pay  out  this  silver  in  its  current  expenditures,  and 


FINANCIAL    AND    BANKING    SITUATION.  347 

thus  get  it  into  (urculation  in  the  couiitiy,  or  wouhl  it  be  retained  in 
the  Treasury  of  the  United  States'? 

Mr.  Eckels.  That  woukl  depend  a  great  deal  upon  the  condition  of 
business  and  the  manner  in  which  the  Treasury  Department  was  con- 
ducted. There  is  now,  for  instance,  deposited  with  the  Secretary  of 
the  Treasury  amounts  of  money  which  the  banks  put  there,  which  are 
used  as  current  funds,  and  I  suppose  it  is  paid  out  at  times  as  needed. 

Mr.  Newlands.  This  silver,  as  I  understand  it,  would  be  the  abso- 
lute proj)erty  of  the  Government  by  this  changed  process? 

Mr.  Eckels.  Yes;  except 

Mr.  Newlands.  Instead  of  being  the  property  of  the  holder  of  the 
silver  certificates  it  would  be  free  silver  in  the  Treasury,  liable  to  be 
paid  out  at  any  time  in  its  expenditures'? 

Mr.  Eckels.  But  with  the  Government's  guarantee  that  it  would 
take  care  of  that  upon  the  basis  on  which  these  notes  are  issued. 

Mr.  ISTewlands.  That  would  mean  the  Government  guaranteeing  to 
maintain  the  jjarity  of  that  silver  Avith  gold;  is  that  it? 

Mr.  Eckels.  No;  the  Government  would  simply  guarantee  ultimate 
redemption  in  gold,  not  its  current  redemption  in  gold. 

Mr.  Newlands.  Of  the  silver  coin  itself? 

Mr.  Eckels.  Yes. 

Mr.  Newlands,  In  its  current  redemption  ? 

Mr.  Eckels.  In  its  current  redemption. 

Mr.  Newlands.  How  do  you  distinguish  between  current  redemption 
and  ultimate  redemption?  Suppose  the  Government  of  the  United 
States  owes  me  for  service  $100  and  pays  me  $100  in  silver  coin.  Do 
you  regard  it  as  current  redemjition  or  ultimate  redemption  if  I  take 
it  to  the  Treasury  and  demand  gold? 

Mr.  Eckels.  I  regard  it  as  ultimate  if  the  notes  are  changed  and 
issued. 

Mr.  Newlands.  It  is  not  the  end. 

Mr.  Eckels.  Take  silver  coin.  If  that  is  put  in  circulation  again  it 
is  simply  current  redemption. 

Mr.  Kewlands,  I  do  not  think  that  we  understand  each  other.  We 
will  assume  now  that  the  banks  have  surrendered  the  silver  certificates 
and  that  the  silver  coin  is  free  in  the  Treasury — $100,000,000  of  silver — 
and  that  the  Government  would  pay  me  $100  in  silver  for  services 
rendered.  Now,  you  say  the  Government  does  not  have  to  make  cur- 
rent redemption,  but  is  to  make  ultimate  redemption  of  that  silver.  I 
ask  you  what  constitutes  the  difference.  Suppose  I  take  that  $100  to 
the  Treasury  of  the  United  States  and  demand  gold.  Do  you  call  that 
current  redemption  or  ultimate  redemption"? 

Mr.  Eckels.  Well,  I  suppose  it  would  be  ultimate  redemption  until 
the  silver  was  issued  again. 

redemptive  money  defined. 

Mr.  Brosius.  Can  there  be  any  such  thing  as  ultimate  redemption 
of  money  that  is  itself  redemptive  money ;  in  other  words,  is  it  correct 
speaking  to  say  that  a  silver  dollar  has  ultimate  redemption  where  it  is 
exchanged  for  gold,  a  silver  dollar  itself  being  redemptive  money — 
absolute  money'? 

Mr.  Eckels.  Yes;  it  is  a  correct  thing  to  say.  As  a  matter  of  fact, 
it  is  not  redemptive  money,  because  it  does  not  stand  by  itself — is  not 
supported  by  itself  It  obtains  value  from  the  gold  with  which  the 
Government  maintains  it  at  a  parity. 


348  FINANCIAL    AND    BANKING    SITUATION. 

^Ir.  Beosius.  If  the  law  says  it  can  bo  used  lor  redecmiug"  other 
nioiu'y  it  is  ledeniptive  iiKniey,  isn't  it? 

]\Ir.  Eckels.  Yes:  but  if  the  law  at  the  same  time  says  the  Govern- 
ment is  obligated  to  maintain  the  parity  of  that  metal  with  some  other 
metal  it  is  not,  correctly  si)eaking,  rodem])tive  money. 

Mr.  Brosius.  That  is  effected  )>y  simply  exchanging  the  gold  dollar 
for  the  silver  tlollar;  but  tlie  silver  dollar  takes  the  place  of  the  gold 
dollar  in  the  Treasury  and  goes  out  in  the  payment  of  the  expenses  of 
the  Government.  It  is  an  exchange  rather  than  a  redemption.  Kedemp- 
tion  carries  with  it  the  idea  that  the  thing  redeemed  is  done  for;  but 
the  silver  dollar  is  not  done  for  at  all.     It  is  absolute  money. 

Mr.  Eckels.  I  think  the  term  current  redemption  is  used,  for 
instance,  as  Treasury  notes  are  taken  in  and  reissued. 

]Mr.  Brosius.  I  Avas  referring  more  especially  to  ultimate  redem])tion. 
I  think,  popularly  speaking,  for  current  redemption  that  woukl  be  all 
right. 

SILVER   REDEEMED    IN    CiOLD. 

Mr.  Newlands.  Then  your  theory  is  that  if  the  Government,  in  the 
payment  of  its  current  obligation  or  expenses,  ])aid  out  this  $400,000,000 
in  silver  and  got  it  into  general  circulation,  and  it  was  deposited  in  the 
banks,  the  banks  could  present  that  silver  to  the  Treasury  of  the  United 
States  and  demand  gold? 

Mr.  Eckels.  I  think  the  banks  would  deposit  it  and  take  out  these, 
if  they  wanted  to  take  out  additional  circulation  on  it. 

^Ir.  Newlands.  They  could  take  out  additional  circulation,  there 
is  no  doubt  of  that,  but  could  they  not  also  present  that  silver  to  the 
Treasury  and  demand  gold  ''. 

Mr.  Eckels.  I  have  no  doubt  that  if  the  metals  were  not  maintained 
at  a  par  the  Government  would  be  obliged  to  give  them  gold. 

Mr.  Xewlands.  But  apart  from  the  question  Avhether  they  would 
give  them  gold  or  not,  under  your  construction  of  the  paritj'  act,  would 
not  the  United  States  Treasury  be  com])elled  to  redeem  this  silver  coin 
in  gold  whenever  the  banks  presented  it? 

The  Chairman.  They  do  not  present  it,  they  can  not  present  it, 
under  the  bill. 

Mr.  Eckels.  I  think  it  would  be  compelled  to  redeem  it — that  is,  I 
think  the  (iovernment  would  be  compelled  to  redeem  it  in  gold. 

Mr.  Newlands.  Then  you  would  do  away  with  this  endless  chain  ? 

The  Chairman.  How,  under  my  bill,  does  the  bauk  ac^quire  any  right 
to  present  silver  when  the  bill  itself  makes  it  an  offense  if  the  bank 
does  not  keep  it  at  a  parity  with  gold  '  I  tlo  not  see  how  they  could 
take  it  from  the  Government. 

Mr.  Xewlands.  I  am  assuming  that  parity  is  maintained;  that  there 
is  no  difference  whatever  in  the  value  of  gokl  or  silver  in  the  United 
States,  and  that  the  banks  have  so  much  silver  and  present  it  to  the 
Treasury  of  tlie  United  States. 

Mr.  Eckels.  If  the  parity  is  maintained  there  is  no  danger  of  tiieso 
dollars  being  presented  to  the  United  States  Treasury,  and  they  will  be 
presented  to  llie  banks  in  the  individual  localities,  instead  of  having  to 
be  sent  to  Washington  or  to  San  Francisco. 

Mr.  Newlands.  You  say  there  will  be  no  danger  of  this  $400,000,000 
in  silver,  or  any  i)art  of  it,  being  forwarded  to  the  Treasury  of  the 
United  States  for  redeiiii)tion  in  gold.  Assuming  that,  I  ask  you 
whether  the  l)anks  would  notliave  the  i  ight  to  ])resentthat  silver  to  the 
Treasury  of  the  United  States  and  demand  redemption  in  gold. 


FINANCIAL    AND    BANKING    SITUATION.  349 

Mr.  Eckels.  Mr.  Walker  says  tliat  under  the  penalties  he  has  pro- 
vided in  this  bill,  whiles  they  might  have  the  right,  the  penalties  attach- 
ing to  it  would  not  make  them  Avish  to  exercise  it. 

The  Chairman.  I  say  under  the  bill  that  would  not  be  done.  They 
would  have  no  right  to  go  to  the  Government  whatever,  because  the 
bill  makes  it  an  act  of  suspension  if  they  themselves  do  not  maintain 
the  parity  between  gold,  silver,  and  paper. 

Mr.  ISTewlands.  I  am  now  endeavoring  to  get  at  the  construction  of 
this  act  by  the  Comptroller  of  the  Currency,  and  I  would  like  to  have 
his  understanding  regarding  this. 

Mr.  Eckels.  I  have  no  doubt  that  all  the  silver  which  the  Govern- 
ment has  issued,  not  being  taken  care  of  by  the  banks,  the  Government 
would  be  responsible  for. 

Mr.  Xewlands.  What  do  you  mean  by  responsible  for  it  ? 

Mr.  Eckels.  Compelled  to  keep  it  at  its  parity  with  gold. 

Mr.  Newlands.  How  ? 

Mr.  Eckels.  They  would  have  to  provide  the  means  for  doing  it. 

Mr.  Newlands.  To  what  means  do  you  refer? 

Mr.  Eckels.  Well,  they  would  have  to  have  gold  in  the  Treasury, 
but  that  question  would  not  arise  if  the  things  could  be  accomplished 
as  provided  by  Mr.  Walker,  putting  upon  the  banks  the  necessity  of 
continually  maintaining  the  parity  of  these  metals.  The  whole  thing 
would  turn  upon  the  ability  of  the  banks  to  maintain  the  parity  of 
these  metals.  There  is  this  to  be  remembered  in  connection  with  this 
matter,  that  the  stock  of  gold  will  continue  to  increase  in  this  country, 
while,  unless  some  new  provision  of  law  is  made,  the  stock  of  silver 
will  not. 

Mr.  Newlands.  I  understand,  under  section  50,  that  any  national- 
bank  association  that  fails  to  keep,  use,  and  pay  out  its  silver  coin  and 
gold  coin  and  currency  notes  so  as  to  keep  all  kinds  of  money  at  a 
parity  each  with  all  the  others,  shall  be  deemed  to  have  failed  to  pay 
in  coin  or  coin  certificates  on  demand  the  greenback  and  reserved  notes 
or  other  notes  signed  and  issued  by  its  officers,  and  that  would,  as  I 
understand  it,  constitute  an  act  of  insolvency.     Is  that  correct? 

Mr.  Eckels.  The  act  of  insolvency  arises  from  its  not  redeeming 
its  notes,  either  in  gold  or  equivalent  to  gold. 

Mr.  Newlands.  It  says  it  shall  be  deemed  to  have  failed  to  pay  in 
coin. 

Mr.  Eckels.  Is  there  a  further  provision*  of  the  act  explaining  what 
is  meant  by  coin  payment? 

The  Chairman.  This  section  50  explains  what  is  meant  by  coin  pay- 
ment. It  says  they  shall  redeem  in  coin,  because  while  we  have  silver 
we  can  not  make  any  more  stringent  provision  than  that.  Then  section 
50  is  put  in.  That  is  if  the  bank  refuses  to  pay  gold  it  puts  gold  at  a 
premium,  and  you  have  to  buy  it  in  the  market,  then  the  bank  has  failed 
to  redeem  in  coin;  but  if  the  payment  of  silver  to  an  individual  does 
not  put  gold  at  a  premium,  then  no  action  can  be  maintained  against 
the  bank  for  refusing  to  pay  gold.  That  is  the  way  it  is  in  Europe,  Ger- 
many, and  France. 

Mr.  Newlands.  Say  a  bank  has  $100,000  only  in  gold  and  $200,000 
in  silver,  and  the  fear  is  by  tendering  silver  to  the  man  who  demands 
redemption  it  may  put  gold  at  a  premium.  What  is  to  prevent  that 
bank  from  taking  its  silver  to  the  Treasury  of  the  United  States  and 
demanding  gold  and  thus  getting  gold  for  redemption? 

Mr.  Eckels.  The  fear  of  the  jjcnalty  that  is  provided  by  the  provision 
of  the  act  if  it  does  not  maintain  the  parity  of  the  metals. 


350 


FINANCIAL    AND   BANKING   SITUATION. 


Mr.  Newlands.  As  I  understand  it,  it  is  maintaining  tlie  parity  of 
the  metals  by  that  means.  It  is  paying  out  gold,  not  silver,  and  it 
takes  its  silver  to  the  Treasury  of  the  United  States  and  gets  gold  for 
it.    Is  not  that  maintaining  the  parity? 

Mr.  Eckels.  That  is  maintaining  the  parity,  but  the  other  thing 
would  tend  to  break  down  the  parity. 

Mr.  Xewlaxds.  What,  taking  the  silver  to  the  Treasury  Department 
for  redemi^tion  in  gold? 

Mr.  Eckels.  J  think  so. 

Mr.  Newlands.  Very  well,  then,  if  that  is  the  case,  why  has  not 
taking  greenbacks  and  Treasury  notes  to  the  Treasury  Department  and 
demanding  redemption  in  gold  broken  down  the  parity  between  green- 
backs and  Treasury  notes  and  gold? 

Mr.  P^civELS.  Possibly  I  should  not  have  said  parity.  I  should  have 
said  breaking  down  the  credit  of  the  Government. 

Mr.  Newlands.  Breaking  down  the  credit  of  theGovernment,  or 

Mr.  Eckels.  And  injuring  the  credit  of  the  bank, 

Mr,  Newlands.  The  credit  of  the  Government  would  not  be  broken 
down  if  it  redeemed  its  silver  in  gold,  would  it? 

Mr.  Eckels.  No,  I  do  not  think  it  would  break  the  credit  of  the 
Government  if  it  redeemed,  but  as  I  understand  it 

Mr.  Newlands.  The  credit  of  the  banks  would  not  be  broken  if  it 
got  gold  for  silver  and  then  tendered  the  gold  in  jedemption  of  its 
obligation  ? 

Mr.  Eckels.  No,  possibly  I  was  in  error  in  that.  This  is  a  matter 
that  Mr.  Walker  should  explain  in  detail.  But  it  is  the  expectation  on 
his  part  that  by  these  various  provisions  of  tlie  bill  which  he  has 
introduced  such  a  parity  would  be  maintained  by  the  banks  that  the 
circumstances  which  you  have  inquired  about  would  not  arise.  All 
the  silver  and  the  legal-tender  paper  issued  in  the  manner  provided  by 
this  act  the  Government  would  be  obliged  to  take  care  of  under  its 
guaranty. 

geographical  location  of  gold. 

Mr.  Newlands.  Can  you  tell  from  the  reports  that  have  been  made 
to  you  where  to-day  most  of  the  gold  of  the  country  is  located  ?  Have 
the  Eastern  banks  more  than  the  Western  banks,  or  the  Northern 
banks  more  than  the  Southern  banks,  of  gold,  proportionately? 

Mr.  Eckels.  You  will  find  a  full  statement  on  this  subject  in  my 
annual  report  for  1896,  page  lil.  In  order  to  make  it  a  part  of  the 
record  I  wish  that  page  to  be  taken  as  a  part  of  my  answer. 

[Annual  Keport  of  the  Coniplrollor  of  the  Currency,  1890,  \>.  21.] 

The  total  cash  and  the  part  thereof  of  gold  and  gold  certilicatos  held  by  reporting 
baukfl,  ill  each  geographical  division  is  as  follows: 


Geographical  division. 


New  England  States 

Eastern  Stat<-s 

Southern  States 

Western  States 

Pacific  States  and  Territories 

Total 


Total  cash. 


$35,  689,  272 
213, 129,  509 

29, 080,  601 
109,  584,  045 

25,  034,  702 


413,124,849 


Amount 
of  f;ol(l  and 
gold  certifi- 
cates. 


.$15, 403, 768 
88,  580, 133 
9,  558, 183 
50,  410, 427 
19,  005,  830 


189,  558, 341 


FINANCIAL   AND    BANKING    SITUATION-  351 

A  comparison  of  the  money  holdinfts  in  these  .cjeographical  divisions  shows  that 
the  829  reportinff  banks  in  the  New  England  States  hehl  bnt  $6,602,671  more  total 
cash  and  $5,845,585  more  gold  and  gold  certificates  than  the  676  reporting  banks  in 
the  Sonthern  States,  not  including  Missouri ;  the  1,275  banks  in  the  Eastern  States 
$103,544,924  more  total  cash  and  $32,1()9,706  more  gold  and  gold  certificates  than  the 
2,434  banks  in  the  Western  States;  the  676  banks  in  the  Sontliern  States  $3,451,841 
more  total  cash  and  $10,047,647  less  gold  and  gold  certificates  than  the  509  banks  in 
the  Pacific  States  and  Territories;  the  829  banks  in  the  New  England  States 
$10,054,510  more  casli  and  $4,202,062  less  gold  and  gold  certificates  than  the  509 
banks  in  the  Pacific  States  and  Territories.  It  has  been  deemed  necessary  to  indi- 
cate the  location  of  banks  reporting  and  not  re])orting  in  order  to  give  a  ])roper 
measure  by  Avhich  to  estimate  the  amount  and  character  of  cash  of  banks  not  report- 
ing. It  is  a  fair  estimate  to  be  drawn  from  reports  received,  and  in  view  of  their 
general  distribution  and  character,  and  the  proportion  of  cash  of  those  reporting 
to  total  cash  held  in  all  such  banks,  that  as  2,265,  or  24.4  per  cent  of  all  banks  and 
companies  other  than  national  banks  held  $34,484,737  in  gold  coin  and  gold  certifi- 
cates, the  whole  number  of  banking  institutions  and  companies  in  operation  in  the 
United  States  on  July  1,  other  than  national,  viz,  9,260,  held  on  that  day  in  gold 
coin  and  gold  certificates  $140,939,807.  Adding  to  this  amount  $161, 853, .560,  the 
total  gold  coin  and  gold  certificate  holdings  of  the  national  banks  on  July  14,  as 
being  the  same  as  held  by  all  of  them  on  July  1,  the  total  gold  and  gold  certificate 
holdings  of  the  banks  of  the  country  on  that  day  was  $302,793,367. 

Mr.  Newlands.  We  all  know  that  the  Pacific  States  and  Territories 
have  more  gold  proportionately  than  any  other  States  because  they 
deal  almost  exclusively  in  metallic  money. 

Mr.  Eckels.  On  pages  20,  21,  and  22  of  the  report  will  be  found  the 
distribution  geographically  of  the  cash  and  the  classification  of  the 
cash  of  the  banks  reporting  to  me. 

Mr.  Newlands.  Assuming  that  the  1400,000,000  of  silver  now  in  the 
Treasury  becomes  free  and  is  paid  out  in  Government  expenditure,  I 
ask  you  whether,  in  your  judgment,  that  silver  would  land  principally 
in  the  Eastern  banks  or  in  the  Western  or  Southern  banks. 

tendency  of  money  to  congest  IN  LAKGE  CENTERS. 

Mr.  Eckels.  Well,  at  the  present  there  are  $15  in  gold  held  in  the 
banks  of  the  silver-producing  States  to  $1  in  silver.  The  tendency  of 
all  money  is  to  congest  in  large  centers. 

Mr.  Newlands.  Where  was  that  $15  of  gold  to  $1  of  silver? 

Mr.  Eckels.  In  the  silver-producing  States.    That  is  the  proportion. 

Mr.  Newlands.  Leaving  out  the  Pacific  Coast  and  the  mining  States, 
which  are  almost  exclusively  upon  a  metallic  basis,  and  considering  only 
the  Eastern  States,  the  Middle  Western  States 

The  Chairman.  Ton  mean  a  metallic  circulation. 

Mr.  Newlands.  Yes,  sir.  Taking  the  States  I  have  named,  and  the 
Southern  States,  where  do  you  think  this  silver  would  be  more  likely  to 
drift? 

Mr.  Eckels.  1  think  there  are  more  silver  and  silver  certificates 
probably  in  general  use  in  the  Southern  and  Middle  Western  States 
than  there  are  in  the  East. 

Mr.  Newlands.  Is  there  not  a  tandeucy  of  gold  to  collect  in  the 
great  cities — the  reserve  centers  ? 

amount   of   gold   in   small   CITIES. 

Mr.  Eckels.  No ;  except  to  the  extent  that  all  moneys  collect  in  the 
reserve  cities.  I  think  it  is  rather  surprising  the  amount  of  gold  that 
is  in  the  smaller  places  as  shown  by  the  returns. 

Mr.  Newlands.  You  do  not  find  a  greater  disparity  between  silver 
and  its  paper  representatives  on  the  one  hand  and  gold  on  the  other  in 
the  country  banks  than  in  the  great  city  banks  ! 


352  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  Xo;  DOt  to  the  extent  generally  supposed.  I  was  sur- 
prised when  I  found  from  this  investigation  the  relative  proportion. 
Of  course  in  the  East,  where  the  advantage  of  the  longer  time  to  accu- 
mulate occurs  and  where  there  is  not  the  same  need  for  expenditures 
for  improvements  in  the  way  of  buildings  and  that  sort  of  thing,  there 
is  naturally  more  money  and  probably  more  gold — always  excepting 
upon  the  Pacitic  Coast,  where  it  is  used  in  daily  transactions. 

Mr.  Newlands.  Xow,  as  between  a  bank  Avhich  sought  to  collect 
the  gold  and  pay  out  its  gold  to  its  depositors  and  in  current  redemp- 
tion, and  a  bank  Avhich  happened  to  have  the  bulk  of  its  money  in 
silver  and  paid  out  its  obligations  in  silver,  do  you  think  there  would 
be  any  bias  in  the  public  mind  as  against  the  gold  in  favor  of  the  other? 

Mr.  Eckels.  I  think  each  individual  bank,  if  it  had  the  resiwnsi- 
bility  placed  upon  it,  would  take  care  of  itself— I  think  competition 
would  regulate  that. 

Mr.  Newlands.  Competition  would  induce  the  banks  that  wanted 
to  get  upon  the  best  basis,  to  maintain  gold  i)aynient,  would  it  not? 

Mr.  Eckels.  Yes;  and  the  other,  to  maintain  its  patronage,  would 
do  the  same  thing. 

Mr.  Xewlands.  So  they  would  both  be  competing  for  gold  and  both 
having  a  tendency  to  reject  further  deposits  of  silver,  would  they  not? 

Mr.  Eckels.  No.  Under  the  provision  of  this  bill  it  is  expected  that 
that  could  not  be  done,  that  the  banks  organized  under  it  would  have 
to  maintain  the  parity  between  these  metals.  I  have  no  doubt  they 
would  take  deposits  of  all  moneys  and  representatives  thereof. 

Mr.  Newlands.  There  would  not  be  any  tendency  to  discourage  the 
deposits  of  silver? 

Mr.  Eckels.  Hardly,  if  the  provisions  of  that  bill  Avere  carried  out 
and  could  accomplish  the  things  which  the  author  expects  the  bill  will 
accomplish.  People  are,  under  normal  conditions,  as  ready  to  accept 
silver  certificates,  silver  and  legal  tenders,  as  they  are  gold. 

Mr.  ]Nev\^lands.  You  would  expect,  then,  that  under  this  act  the  exist- 
ing amount  of  silver  in  the  country  could  be  maintained  at  a  par  with 
gold? 

Mr.  Eckels.  I  think  the  United  States,  with  a  proper  banking  sys- 
tem, if  the  banks  were  given  the  i)rivilege  of  issuing  all  the  credit 
currency  of  the  country,  would  probably  be  able  to  take  care  of 
$505,000,000  in  silver. 

Mr.NEWLANDS.  And  maintain  its  parity  with  gold? 

Mr.EcKELS.  Yes. 

present  amount  of  silver  currency. 

Mr.  Fowler.  What  is  the  point  of  saying  .'ir5G5,000,00O  of  silver. 

Mr.  Eckels.  That  is,  as  1  remember  it,  the  present  amount  of  our 
silver  currency.  1  do  not  think  the  country  could  take  care  of  any 
more. 

The  Chairman.  Is  $5()5,000,000  the  present  amount  of  silver  in  cir- 
culation ? 

Mr.  Eckels.  Yes;  there  is  almost  that  amount.  1  include  in  that 
the  Sherman  notes.     1  think  there  is  about  that  amount  of  silver. 

Mr.  Newlands.  Would  you  regard  it  as  an  advantage  and  strength- 
ening of  our  monetary  system  if  the  commcicial  Aalue  of  that  silver 
were  ecjual  to  its  coinage  value? 

Mr.  E<'KELS.  Only  to  the  extent  that  we  would  not  then  have  to 
worry  about  the  parity  between  the  two  metals. 


FINANCIAL    AND    BANKING    SITUATION.  353 

Mr.  Xewlands.  Do  you  regard  that  as  mncli  of  a  worry? 
Mr.  Eckels.  It  has  been  a  g"reat  source  of  worry  in  tlie  last  few 
years. 
Mr.  Newlands.  Is  it  a  matter  of  worry  uow? 

SILVER   COINAGE   AGITATION   ENDED. 

Mr.  Eckels.  No;  but  simply  for  the  reason  that  people  seem  to  be 
pretty  well  satisfied  that  we  have  gotten  to  the  end  of  the  agitation  for 
silver  coinage. 

Mr.  Newlands.  Is  it  a  matter  of  any  worry  as  to  the  future — any 
anxiety  as  to  the  future"?  Do  you  fear  at  all  that  the  Government  will 
be  called  upon  to  make  gold  redemption  as  heretofore,  and  to  issue 
bonds  for  that  puri)ose? 

Mr.  Eckels.  I  suppose  that  there  might  an  occasion  arise  when  it 
would  be,  but  the  prudent  thing,  it  seems  to  me,  is,  when  there  seems 
to  be  no  occasion  to  fear  any  such  thing,  to  get  rid  of  the  means  which 
makes  it  a  possibility  in  the  future. 

Mr.  Newlands.  Now,  the  ultimate  cause  of  this  worry  is  the  dispar- 
ity between  the  bullion  value  of  silver  and  gold,  is  it  not? 

Mr.  Eckels.  Yes;  that  the  Government  is  continually  called  upon  to 
give  artificial  value  to  a  part  of  the  money. 

INTERNATIONAL   ACTION   ON   SILVER. 

Mr.  Newlands.  If  it  were  possible,  by  international  action  or  national 
actiou,  to  so  increase  the  use  of  silver  as  to  restore  that  parity,  would 
you  regard  it  as  a  desirable  thing,  or  not? 

Mr.  Eckels.  I  do  not  see  tliat  it  would  add  to  tiie  actual  benefit  of 
the  people  to  have  a  larger  use  of  silver.     The  only  benefit  would  be 

Mr.  Newlands.  I  am  addressing  myself  only  to  the  parity  now. 

Mr.  Eckels.  The  only  benefit  would  be  that  there  would  be  removed 
the  fact  that  a  part  of  the  money  is  artificial  as  to  its  value  instead  of 
itself  carrying  the  full  value  which  it  purports  to  carry. 

CONSTITUTIONALITY   OF   PROPOSED   LEGAL   TENDERS. 

Mr.  Brosius.  I  would  like  to  know  whether,  in  your  judgment — I  do 
not  know  that  you  are  a  lav>^yer,  but  I  presume  you  are — the  issue  by 
banks,  under  the  conditions  proposed  in  the  bill  now  before  us,  of  legal- 
tender  notes,  would  be  constitutional. 

The  Chairman.  It  doesn't  provide  for  that. 

Mr.  Eckels.  The  Supreme  Court  stretched  the  Constitution  once, 
and  I  presume  it  could  again. 

Mr.  Brosius.  The  plan  proposed  is,  for  the  Government  to  issue  to  the 
banks  legal-tender  notes,  whi(;h  the  banks  shall  issue.  If  you  say  these 
are  issued  by  the  Government  they  are  in  the  same  attitude  as  the 
present  legal  tenders,  and,  of  course,  they  are  constitutional.  My  point 
is,  whether  it  is  obnoxious  to  constitutional  objections  for  the  Govern- 
ment to  authorize  banks  to  issue  legal-tender  money. 

The  Chairman.  The  bill  doesn't  say  that  they  shall  print  and  deliver 
to  the  banks  the  legal-tender  notes,  or,  in  the  language  of  the  bill — 

That  the  Secretary  of  the  Treasury  is  hereby  authorized  to  issue  United  States 
legal-tender  notes  described  in  section  3  of  the  act  of  March  3,  1863. 

Mr.  Brosius.  And  the  bank  shall  issue  them.     The  present  law 
authorizes  the  banks  to  issue  money,  but  that  is  not  a  legal  tender.    It 
cur 23 


354  FINANCIAL    AND    BANKING    SITUATION. 

is  the  same  thing  for  the  law  to  authorize  tlie  Goverumeut  to  supply 
these  banks  vrith  paper  money  under  this  hill,  but  under  this  bill  this 
money  is  legal  tender.  The  point  is,  whether  that  is  obnoxious  to  the 
Constitution  or  not. 

3Ir.  Eckels.  I  think  if  the  Constitution  was  stretched  so  as  to 
cover  the  greenbacks  it  would  cover  this. 

DECISION   OF    THE   SUPRElVrE    COURT. 

Mr.  Fowler.  Does  not  that  decision  that  the  Supreme  Court  rendered 
when  the  (piestion  was  brought  up  as  to  the  power  to  reissue  immedi- 
ately cover  that,  giving  Congress  a  right  to  make  anything  a  legal 
tender  ? 

Mr.  Cox.  It  doesn't  go  that  far. 

Mr.  Eckels.  I  do  not  believe  it  is  right,  but  it  is  the  decision  of  the 
court,  and  it  is. just  as  eflective  for  the  purpose  to  be  accomplished  as 
though  it  was  right. 

Mr.  IjROSIUS.  Could  Congress,  under  the  Constitution,  make  the  pres- 
ent bank-note  currency  legal  tender? 

Mr.  Eckels.  It  did  make  the  Treasury  issues  legal  tender,  and  the 
Supreme  Court  upheld  them.  It  says  that  they  could  make  anything 
legal  tender.     I  do  not  believe  that  is  right. 

Mr.  Cox.  I  agree  with  you,  Mr.  Eckels,  that  it  is  not  right. 

Mr.  Eckels.  But  it  is  the  law. 

STANDARD   OF   VALUE. 

Mr.  FowLER.  lu  your  hearings  here  I  have  gathered  that  in  your 
judgment  the  matter  that  to-day  is  causing  more  unrest  and  the  source 
of  more  trouble  than  any  other  is  the  doubt  about  our  national  credit, 
and  therefore  the  first  object  of  a  comi)rehensive  measure  would  be  to 
establish  irrevocably  the  standard  of  vahie  of  this  country. 

Mr.  Eckels.  That  is  the  largest  element. 

Mr.  Fowler.  Therefore  that  should  be  the  consideration  in  any 
measure. 

Mr.  Eckels.  That  has  been  established  for  sixty  years. 

Mr.  Fowler.  But  established  irrevocably.  I  suppose  that  could  be 
done.     It  is  possible,  is  it  not  ? 

Mr.  Eckels.  I  am  sure,  Mr.  Fowler,  that  it  is  thoroughly  wise  to 
em])hasize  the  fact  that  the  United  States  maintains  the  gold  stand- 
ard; and  that  fact  is  emphasized  by  the  fact  that  it  is  made  incumbent 
that  all  credit  issues  of  the  banks  shall  be  redeemed  in  gold. 

Mr.  Fowler.  But  is  there  anything  in  this  measure  that  any  more 
prominently  fixes  in  the  mind  of  the  i)ublic  that  gold  is  the  standard 
and  that  no  other  standard  will  be  recognized,  than  exists  to-day  in  the 
mind  of  the  ])ublic? 

I\Ir.  Eckels.  I  take  it  under  the  construction  of  the  clause  about 
maintaining  the  parity  that  that  is  the  provision  witli  which  Mr.  Walker 
sets  forth  the  establishing  of  tlie  standard. 

Mr.  FowLEK.  But  it  would  be  no  stronger  than  our  present  position 
unless  you  assume  that  the  power  of  the  banks  is  greater  than  that  of 
the  Government,  would  it  not — its  position  is  the  same? 

Mr.  Eckels.  Yes;  but  the  assum])tion  is 

Mr.  Fowler.  To  that  extent  it  does  not  fix  it  any  more  definitely  in 
the  public  mind  than  it  is  now  fixed,  does  it? 

Mr.  I^CKELS.  Except  that  it  takes  away  the  current  redemption  of 
these  demand  obligations. 


FINANCIAL    AND    BANKING    SITUATION.  355 

Mr.  Fowler.  They  are  left  to  the  bauks  to  be  eurreiitly  redeemed? 

Mr,  Eckels.  Yes. 

Mr.  Fowler.  Therefore  the  only  difterence  is  you  have  not  added 
anything  to  the  strength  or  the  ])ermanency  of  the  gold  standard  except 
so  far  as  you  may  assume,  or  I  may  assume,  that  the  banks  can  more 
easily,  more  certainly,  maintain  redemption  than  the  Government  itself 
can  ! 

The  Chairman.  I  avIII  admit  that.  You  know  they  can  do  so;  don't 
you  know  they  can? 

RETIREMENT  OF  LEGAL  TENDERS. 

Mr.  Fowler.  I  thmk  I  do.  Now,  in  the  second  place,  the  next  point, 
as  I  understand  your  remarks,  that  is  of  essential  importance  is  that 
all  the  demand  obligations  of  this  Government  should  be  retired.  Is 
that  true? 

Mr.  Eckels.  That  is  right. 

Mr.  Spalding.  But  not  now ;  that  is  what  he  says. 

Mr.  Eckels.  I  said  gradually. 

Mr.  Fowler.  The  question  is  that  that  is  the  next  thing.  Is  it  your 
judgment  that  the  effect  of  this  measure,  admitting  that  the  Govern- 
ment would  be  bound  to  maintain  the  parity,  as  you  have  stated  in 
answer  to  Mr.  Newlands,  and  that  this  bill  will  virtually  strengthen  the 
situation  of  it  or  improve  it 

Mr.  Eckels.  The  provision  of  the  bill  looking  toward  the  imprison- 
ment of  the  demand  obligations  of  the  Government  I  think  would 
strengthen  the  situation.  I  said  at  the  outset  that  my  own  view  of  the 
thing  was  not  imprisonment  but  permanent  disposition  of  them. 

Mr.  Newlands.  Mr.  Walker  contends  that  this  does  permanently 
dispose  of  them. 

Mr.  Eckels  (continuing).  But  Mr.  Walker  contends,  and  others  con- 
tend, that  that  is  not  a  practical  thing.  That  is  a  matter  that  is  not 
for  me  to  determine.  That  is  a  matter  which  is  for  the  members  of 
the  committee  to  determine,  who  are  making  the  bill,  and  for  Congress. 

Mr.  Fowler.  The  point  is  this,  and  I  think  you  answere'd  that  way — 
and  I  agreed  with  your  conclusion — that  the  Government  would  have 
to  maintain  the  parity  of  the  metals  if  there  were  $400,000,000  or 
$500,000,000  in  silver  out,  and  as  Mr.  Newlands  put  it,  if  a  bank  had 
$100,000  of  gold  and  $200,000  of  silver  and  in  order  to  strengthen  its 
position  it  says  "  We  want  $100,000  more  gold,"  they  take  $50,000  in 
silver  to  Washington  or  Xew  York  and  say,  "We  want  $50,000  gold 
for  this,"  and  that  might  happen  in  the  case  of  1,000  banks  at  the  same 
time.  Do  you  not  think  that  the  Government  would  be  found  to 
respond  to  the  request  of  those  banks  ? 

Mr.  Eckels.  I  will  say  frankly,  Mr.  Fowler,  that  I  think  that  as  long 
as  there  is  a  currency  in  circulation  which  does  not  maintain  itself 
there  is  always  danger  to  the  Government. 

Mr.  Fowler.  The  point  is  this:  That  if  the  preponderance  of  the 
cheaper  or  the  weaker  money,  metal  or  paper,  j)asses  beyond  the  iioint 
of  saturation,  which  is  simply  that  that  meets  its  needs,  that  would 
naturally  go  back  for  redemption. 

Mr.  Eckels.  Every  dollar  that  is  out  that  is  not  needed  will  go  back 
for  redemption. 

Mr.  Fowler.  So  if  you  actually  absorb  the  silver  in  the  channels  of 
trade  through  the  provisions  made  for  its  use,  and  the  banks  had  a 
smaller  amount  of  gold  than  silver,  it  would  want  to  have  silver  to 
strengthen  its  position. 


356  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  That  is  likely  so,  but  that  is  a  matter  which  Mr.  Walker 
believes  he  has  covered  in  his  bill  by 

Mv.  Fowler.  That  Avould  be  a  silver  chain  instead  of  the  greenback 
endless  chain. 

Mr.  Eckels.  I  do  not  think  he  anticipates  such  a  thing  would  happen. 

Mr.  FOWLEK.  I  say,  would  not  that  result — isn't  that  true? 

The  Chairman.  I  would  like  to  have  the  Comptroller  tell  us  how 
a  umu  is  going  to  take  silver  and  ask  redemi)tion  when  the  banks 
themselves  are  compelled  to  keep  the  silver  at  a  parity  with  gold. 

Mr.  Fowler.  AYhere  is  he  going  to  get  it — where  are  the  banks  going 
to  get  it,  except  from  the  (iovernment? 

The  Chairman.  You  might  as  well  ask  the  question  about  the  air 
that  we  breathe — how  are  we  going  to  get  that? 

Mr.  Fowler.  I  have  always  heard  that  the  i)oorer  metal  would  chase 
out  the  good  metal. 

The  Chairman.  It  would  if  they  were  compelled  to  pay  out  this 
metal.  It  is  like  putting  a  dam  across  a  stream  to  keep  the  water  from 
going  to  its  common  level. 

G-OVERNMENT   DIVORCED   FROM  BANKING    BUSINESS. 

Mr.  Brosius.  If  this  ])ill  goes  into  eflect  the  Government  is  not  in 
the  banking  business  at  all. 

Mr.  Eckels.  I  suppose  the  theory  ujion  which  the  provisions  of  the 
bill  are  based  as  to  the  silver  in  the  country,  is  that  the  banks  will  be 
able  to  sustain  the  i)arity  of  the  amount  of  silver  now  in  circulation 
without  expectation  of  its  increase  with  gold,  and  that  they  are  better 
able  to  do  it  than  the  Government. 

Mr.  Hill.  Aside  from  the  parity  clause  in  this  bill,  isn't  it  entirely 
possible,  under  the  i^rovisious  of  this  bill,  for  a  bank  to  redeem  all  its 
obligations  in  silver? 

Mr.  Eckels.  It  subjects  itself,  under  the  bill,  to  a  certain  tax  if  it 
does  not  maintain  the  parity. 

Mr.  HiLi^.  But  I  say,  aside  from  the  parity  clause,  isn't  is  possible 
under  the  other  provisions  of  the  bill  to  redeem  all  its  obligation  notes 
of  both  kinds,  and  everything,  in  silver.  The  provision  is  that  they 
shall  pay  in  coin  or  coin  certificates.  It  does  not  say  gold  or  silver, 
and  the  only  thing  that  prevents  these  banks  going  entirely  to  a  silver 
basis  is  that  provision  of  parity,  l^ow,  when  you  come  to  the  provision 
of  i)arity,  that  is  not  limited  to  redemption  of  notes,  but  it  is  in  the 
payment  of  every  obligation — deposits  and  everything  else,  that  it  has 
got  to  maintain  the  parity  of  the  various  kinds  of  currency.  Can  it  be 
done? 

Mr.  Eckels.  Under  my  construction  of  that  section  and  the  con- 
struction I  stated  to  Mr.  Newlands  some  time  ago,  I  would  deem  a 
bank  to  be  committing  an  act  of  insolvency  if  it  did  not  redeem  its 
notes  in  gold  on  demand. 

Mr.  Hill.  Under  tliat  parity  clause  only;  that  you  would  consider 
covered  everything  else? 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  If  they  all  came  in  insisting  on  goldl 

Mr.  Eckels.  It  is  very  much  like  the  case  when  the  constitution 
was  presented  to  Gouverneur  Morris,  of  New  York,  and  he  was  asked 
what  he  thought  about  it.  His  reply  was  that  it  depended  upon  how 
it  was  construed.  So  the  construction  of  that  clause  is  vital,  and  to 
make  it  so  it  ought  to  be  held  that  if  the  bank  failed  to  redeem  upon 


FINANCIAL    AND    BANKING    SITUATION.  357 

the  demand  of  the  note  holder  in  gold  it  would  commit  an  act  of 
insolvency. 

Mr,  Newlands.  How  about  the  depositor? 

Mr.  Eckels.  And  the  same  rule  should  apply  to  the  demand  of  a 
depositor. 

Mr.  Hill.  In  the  first  draft  of  the  bill  it  was  jDrovided  that  the 
redemption  fund  should  be  paid  out,  but  under  the  last  reprint  of  the 
bill  the  redemption  fund  has  been  stricken  out  and  the  general  provi- 
sion is  now  to  maintain  the  parity  of  all  money  for  any  money  it  pays 
out,  deposits  or  redemption  fund  or  anything  else,  and  the  only  resource 
the  bank  has  is,  it  can  pay  out  what  it  pleases  by  paying  to  tlie  United 
States  Government  an  interest  account  on  the  deficiency  of  its  reserve 
of  4  per  cent  per  annum  on  that  deficiency.     Am  I  correct? 

Mr.  Eckels.  Please  repeat  your  question. 

Mr.  Hill.  I  say  it  has  the  option  of  withdrawing  from  the  parity 
clause  by  paying  to  the  United  States  Government  such  a  sum  as  would 
be  represented  by  4  per  cent  interest  on  its  deficiency  of  reserve,  but 
if  its  deficiency  of  reserve  is  kept  up  to  the  full  amount  it  can  pay  sil- 
ver or  greenbacks  or  gold,  as  it  chooses. 

Mr.  Eckels.  But  not,  if  my  construction  is  correct,  that  an  act  of 
insolvency  would  be  committed.  However,  those  matters  would  prob- 
ably largely  regulate  themselves  except  in  extreme  conditions,  as  we 
see  now.  People  in  normal  times  would  not  be  demanding  a  particular 
kind  of  money.  In  a  general  way,  I  think  it  is  fair  to  me  to  say  that 
the  exi3lanation  of  the  various  provisions  of  these  bills,  which  have 
been  drawn  by  the  gentlemen  presenting  them,  ought  to  rest  largely 
upon  their  explanation,  not  mine.  I  simply  can  state  some  general 
views  on  the  subject,  and  must  leave  to  the  others  to  explain  the  intri- 
cacies of  the  details  thereof. 

OPINION   OF   THE    COMPTROLLEK. 

The  Chairman.  It  is  due  to  me  to  ask  you,  Mr.  Eckels,  whether  I 
have  gotten  your  opinion  upon  this  bill  before  you  came  here,  or 
whether  we  have  consulted  about  it  except  about  it  being  properly 
phrased  when  you  were  reading  it  over  with  me.  I  want  to  know 
whether  this  matter  has  ever  been  mentioned  between  you  and  me 
except  that  way. 

Mr.  Eckels.  No. 

The  Chairman.  This  is  the  first  time  I  ever  have  known  what  you 
really  thought  of  or  would  say  of  the  bill. 

Mr.  Eckels.  In  the  treatment  of  all  these  bills  I  have  been  very 
glad  to  furnish  the  various  gentlemen  who  are  interested  in  them  such 
statistical  information  as  they  have  wanted.  I  have  furnished  Mr. 
Fowler  with  a  good  deal,  and  I  have  furnished  Mr.  Walker  with  a  good 
deal.  I  will  be  very  glad  to  furnish  them  or  any  other  gentleman  on 
the  committee  with  any  other  information  in  my  power. 

Mr.  Newlands.  None  of  us  regards  Mr.  Eckels  as  an  accomplice  in 
this  bill. 

The  Chairman.  To-morrow  has  been  assigned  to  the  international 
banking  bill. 

Thereupon  the  committee,  at  4  o'clock  p.  m.,  adjourned. 


358'  ^FINANCIAL    AND    BANKING    SITUATION. 

Com:mittee  on  Banking  and  Ourrency, 

Washi)u/f(»i,  J).  C,  Monday,  February  8,  1807'. 
The  committee  met  at  lO.oO  a.  m. 

[Members  present:  The  chairman  (Mr.  Walker)  and  ^Messrs,  Jirosius, 
Johnson,  Van  Voorliis,  Fowler,  Spalding,  Calderhead,  Hill,  Cooke,  Cox, 
Stallings,  Black,  Xewlands,  and  Hendrick. 

Hon.  James  II.  h^ckels.  Comptroller  of  the  Currency,  apj^eared  before 
the  committee  and  continued  his  statement  begun  on  January  28, 1897. 

STATEMENT  OF  HON.  JAMES   H.  ECKELS,  COMPTROLLER  OF  THE 

CURRENCY— Continued. 

The  Chairman.  Allow  me  to  say  that  the  business  before  this  com- 
mittee is  considering  bills  which  were  referred  to  this  committee,  and 
which  were  introduced  by  ]\lr.  Walker,  Mr.  Cox,  Mr.  Hill,  Mr.  Fowler, 
and  Mr.  Brosius.  However  interesting  discussions  in  other  directions 
may  be,  they  are  not  in  order.     Mr.  Cox  has  the  floor. 

Mr.  Cox.  Have  you  a  copy  of  the  bill  H.  R.  1999  before  you  there? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  I  shall  confine  my  short  examination  to  the  explanation  of 
this  bill. 

[H.  R.  1999,  Fifty-fourth  Congress,  first  session.] 
A  BILL  to  regulate  national  currency  and  provide  for  national  money. 

Be  it  enacted  hij  the  Senate  and  House  of  liepresentatives  of  the  United  States  of  America 
in  Congress  assembled,  That  so  much  of  all  acts  and  parts  of  acts  as  require  or  author- 
ize the  deposit  of  United  States  bonds  to  secure  circulating  notes  issued  by  national 
banking  associations,  or  as  require  such  associations  to  deposit  or  keep  on  deposit 
United  States  bonds  for  any  purpose  except  as  secuiity  for  public  money,  be,  and 
the  same  are  hereby,  repealed  as  to  associations  taking  circulation  under  this  act; 
and  notes  issued  under  this  act  shall  not  contain  the  statement  that  they  are  so 
secured. 

Sec.  2.  That  any  national  banking  association  organized  as  now  provided  by  law, 
and  any  national  banking  association  hereafter  organized,  may  take  out  circulating 
notes  to  .111  amount  not  exceeding  seventy-live  per  centum  of  its  paid-up  and  unim- 
paired capital  upon  depositing  with  the  Treasurer  of  the  Ignited  States  currencj' 
certiticates  issued  under  section  lifty-one  hundred  and  ninety-three  of  the  Revised 
Statutes  of  the  United  States,  or  United  States  legal-tender  notes,  including  Treas- 
ury notes  issued  under  the  act  approved  July  fourteenth,  eighteen  hundred  and 
ninety,  entitled  "An  act  directing  the  purchase  of  silver  bullion  and  the  issue  of 
Treasury  notes  thereon,  and  for  other  ])iwposes,"  and  other  lawful  money  of  the 
United  States,  at  the  discretion  of  the  Secretary  of  the  Treasury,  as  a  guaranty  fund 
equal  to  thirty  per  centum  of  the  circulating  notes  applied  for.  The  association 
making  such  deposit  shall  bo  entitled  to  rticelve  from  the  Comi)troller  of  the  Cur- 
rency circulating  notes  in  denominations  of  ten  dollars  and  multiples  thereof  ia 
blank,  registered  and  countersigned  as  pro\'ided  bylaw;  and  all  such  notes  shall 
constitute,  and  nro.  licreby  declared  to  be,  a  iirst  lien  upcm  all  the  assets  of  the  asso- 
ciation issuing  the  same.  All  circulating  notes  furnished  to  national  banking 
associations  under  this  act  shall  be  uniform  in  design  ;  and  the  Comptroller  of  the 
Currency  is  liereby  authorized  anil  directed  to  liave  projiared  and  keep  <>n  hand, 
ready  for  delivery  on  application,  a  reserve  of  blank  notes  for  each  national  Itanlving 
association  having  circulation  ;  but  such  reserve  for  each  bank  shall  at  no  time  be  in 
excess  of  the  diticrence  I)etween  the  amount  fif  its  notes  then  outstanding  and  the 
total  amount  which  it  is  by  this  act  authorized  to  rec(?ive. 

Sec.  3.  That  in  lieu  of  all  existing  taxes  each  national  banking  association  taking 
out  circulation  under  this  act  shall  pay  to  the  Treasurer  of  the  United  States,  in  the 
months  of  .January  and  .Inly  of  each  year,  a  <luty  of  one-fourth  of  one  per  centum 
for  each  lialf  year  u]ion  the  average  .amount  of  its  notes  in  cii'culation;  and  in  com- 
puting such  average  ail  notes  issued  by  such  .■tssociation  and  not  actually  retired 
from  circulation  in  tlie  manner  licireinalter  ])rovid<!d  shall  be  included. 

Skc.  4.  That  each  national  V)anking  association  shall  redeem  its  notes  at  par  on 
presentation  at  its  own  oldce  and  at  such  .agencies  as  may  be  designated  for  that 
purpose  by  the  Comptroller  of  the  Currency  ;  and  whenever  such  association  desires 


FINANCIAL    AND    NANKING    SITUATION.  359 

to  retire  tlie  wliole  or  any  part  of  its  circulatiou,  the  notes  to  be  retired  shall  be 
forwarded  to  the  Comptroller  of  the  Currency  for  cancellation,  and  thereupon  a  sum 
ec^ual  to  thirty  per  centum  of  such  canceled  notes  shall  be  returned  to  the  associa- 
tion, in  lawful  money  of  the  United  States.  Defaced  and  mutilated  notes  and  notes 
otherwise  unlit  for  circulation  which  have  been  redeemed  by  any  association  may 
be  returned  to  the  Comptroller  of  the  Currency  for  destruction  and  reissue,  as  now 
provided  by  law. 

Sec.  5.  That  in  order  to  provide  a  safety  fund  for  the  prompt  redemption  of  the 
circulating  notes  of  failed  national  banking-  associations  each  such  association  now 
organized  or  hereafter  organized,  and  receiving  circulation  under  this  act,  shall  pay 
to  the  Treasurer  of  the  United  States,  in  the  months  of  January  and  July  in  each 
year,  a  tax  of  one-fourth  of  one  per  centum  for  each  half  year  upon  the  average 
amount  of  its  circulating  notes  outstanding,  to  be  computed  as  hereinbefore  pro- 
vided, until  the  said  fund  amounts  to  a  sum  eiiual  to  live  per  centum  upon  the  total 
amount  of  such  national-bank  notes  outstan<ling,  and  thereupon  the  collection  of 
said  tax  shall  be  suspended.  Each  association  hereafter  applying  for  circulating 
notes  shall,  before  receiving  the  same,  pay  its  pro  rata  share  into  the  said  fund  ;  but 
an  association  retiring  or  reducing  its  circulation  shall  not  be  entitled  to  withdraw 
any  part  of  said  fund.  When  any  such  national  banking  association  becomes  insol- 
vent, its  guaranty  fund  held  on  deposit  shall  be  trauvsferred  to  the  safety  fund  herein 
provided  for,  and  applied,  together  with  such  part  of  the  safety  fund  as  may  be 
necessary,  to  the  redemption  of  its  outstanding  notes ;  and  in  case  the  said  last- 
mentioned  fund  should  at  any  time  be  impaired  by  the  redemption  of  the  notes  of 
failed  national  banks,  and  immediately  available  assets  of  said  banks  are  not  sufficient 
to  reimburse  it,  the  collection  of  said  tax  of  one-fourth  of  one  per  centum  for  each 
half  year  shall  be  resumed  and  continued  until  the  said  fund  isrestoredto  an  amount 
equai  to  live  per  centum  upon  the  total  circulation  outstanding.  All  circulating 
notes  of  failed  national  banks  taken  out  under  this  act  not  redeemed  on  presentation 
to  the  Treasury  of  the  United  States,  or  an  assistant  treasurer  of  the  United  States, 
shall  bear  interest  at  the  rate  of  six  per  centum  per  annum  from  the  date  of  suspen- 
sion of  the  bank  until  thirty  days  after  public  notice  has  been  given  that  funds  are 
on  hand  for  their  redemption,  and  such  notes  shall  constitute  a  first  lieu  upon  all 
moneys  thereafter  received  into  the  safety  fund. 

Sec.  6.  That  the  Secretary  of  the  Treasury  may  from  time  to  time  invest  any  money 
belonging  to  the  safety  fund  in  United  States  bonds,  and  the  bonds  so  purchased  and 
the  interest  accruing  thereon  shall  be  held  as  part  of  the  said  fund.  Such  bonds  may 
be  sold  when  necessary  and  the  proceeds  used  for  the  redemption  of  the  circulating 
notes  of  failed  national  banks. 

Sec.  7.  That  every  national-banking  association  heretofore  organized  and  having 
bonds  on  deposit  to  secure  circulation  may  withdraw  such  bonds  iipon  the  deposit 
of  lawful  money  of  the  United  States,  as  now  provided  by  law;  and  thereafter  such 
association  may  take  out  circulation  under  this  act  and  be  entitled  to  all  the  rights, 
privileges,  and  immunities  herein  .conierred. 

Sec.  8.  That  the  whole  of  section  nine  and  so  much  of  section  twelve  of  the  act 
approved  July  twelfth,  eighteen  hundred  and  eighty-two,  entitled  "An  act  to  enable 
national  banking  associations  to  extend  their  corporate  existence,  and  for  other  pur- 
poses,'' as  directs  the  Secretary  of  the  Treasury  to  receive  deposits  of  gold  and  to 
issue  certificates  thereon  be,  and  the  same  are  hereby,  repealed ;  aud  section  thirty-one 
of  the  act  approved  Ji;ne  third,  eighteen  hundred  and  sixty-four,  entitled  "An  act 
to  provide  a  national  currency  secured  by  a  pledge  of  United  States  bonds,  and  to 
provide  for  the  circulation  and  redemption  thereof^"  and  sections  fifty-one  hundred 
and  ninety-one  and  fifty-one  hundred  and  ninety-two  of  the  Eevised  Statutes  of  the 
United  States,  and  all  acts  and  parts  of  acts  amendatory  thereof,  be,  and  the  same 
are  hereby,  repealed :  Froiided,  That  no  banking  association  taking  out  circulation 
under  this  act  shall  retire  or  cancel  any  of  its  bank  notes  Avithout  the  written  con- 
sent of  the  Secretary  of  the  Treasury  (if  said  notes  are  national-bank  notes)  or  the 
proper  State  officer  (if  said  notes  are  State  notes). 

Sec.  9.  That  the  Secretary  of  the  Treasury  may,  in  his  discretion,  use  from  time  to 
time  any  surplus  revenue  of  the  United  States  in  the  redemption  and  retirement  of 
United  States  legal-tender  notes  and  notes  issued  under  the  act  of  July  fourteenth, 
eighteen  hundred  and  ninety,  but  the  amount  of  such  notes  retired  shall  not  in  the 
aggregate  exceed  an  amount  equal  to  seventy  per  centum  of  the  additional  circula- 
tion taken  out  by  national  banks  and  State  banks  under  the  provisions  of  this  act; 
and  hereafter  no  United  States  notes,  national-bank  notes,  or  Treasury  notes  author- 
ized by  the  Act  of  July  fourteenth,  eighteen  hundred  and  ninety,  entitled  "An  act 
directing  the  purchase  of  silver  bullion  and  the  issue  of  Treasury  notes  thereon,  and 
for  other  purposes,"  of  a  less  denomination  than  ten  dollars  shall  be  issued,  and  as 
rapidly  as  such  notes  of  denomination  less  than  ten  dollars  shall  be  received  into 
the  Treasury,  otherwise  than  for  redemption  and  retirement,  they  shall  be  canceled, 
and  an  equal  amount  of  notes  of  like  character,  but  in  denominations  oif  ten  dollare 


360  FINANCIAL    AND    BANKING    SITUATION. 

or  multiples  thr-reof.  shall  he  issued  in  thoir  places;  but  notliing  in  this  act  shall  be 
so  construed  as  to  repeal  or  in  any  manner  affect  the  second  section  of  the  said  act 
of  July  fourteenth,  eighteen  hundred  and  ninety. 

Sec.  10.  That  section  lifty-one  hundred  and  ninety-one  of  the  Revised  Statutes  of 
the  United  States  be,  and  the  same  is  hereby,  amended  so  as  to  require  national 
banking  associations  to  keej)  not  less  than  one-half  of  their  reserve  (provided  for  in 
said  sci'tion)  in  legal-tender  notes  or  Treasnry  notes  issued  under  the  act  of  .July 
fourteenth,  eighteen  hnndr(>d  and  ninety,  entitled  "An  act  to  direct  the  purchase  of 
silver  bullion  and  the  issue  ol'  Treasury  notes  thereon,  and  for  other  purposes,"  if 
required  to  do  so  by  the  Secretary  of  tlie  Treasnry. 

Sec.  11.  That  whenever  tliere  shall  bo  received  into  the  Treasury  of  the  United 
States  any  legal-tender  notes  or  Treasury  notes  issued  under  the  act  of  July  four- 
teenth, eighteen  liundred  and  ninety,  of  less  denomination  than  ten  dollars  the  same 
shall  be  canceled  au<l  silver  dollars  or  silver  certificates  of  like  denominations  shall 
be  issued  in  aiuouTit  e(iual  to  such  notes  so  canceled;  and  in  order  to  put  the  pro- 
visions of  this  act  into  effect  the  Secretary  of  tlie  Treasury  shall  proceed  to  coin  the 
silver  bullion  in  the  Treasury  as  rapidly  as  practical)le,  and  he  is  herel)y  directed  to 
issue  silver  certificates  ujxm  the  silver  bullion  now  in  the  Treasury  for  the  purposes 
hereinabove  stated,  and  he  is  authorized  to  coin  so  much  of  said  bullion  as  he  may 
deem  proper  into  subsidiary  coin,  to  be  used  for  the  purposes  set  forth  in  this  section. 

Sec.  12.  That  the  Secretary  of  the  Treasury  is  hereby  empowered  and  authorized 
to  require  any  part  of  the  customs  dues  or  duties  on  imports  to  be  paid  in  United 
States  legal-tender  notes,  including  Treasury  notes  issued  under  the  act  of  July 
fourteenth,  eighteen  hundred  and  ninety,  entitled  "An  act  directing  the  purchase 
of  silver  bullion  and  the  issue  of  Treasury  notes  thereon,  and  for  other  purposes." 

Sec.  13.  That  the  bonds  which  may  hereafter  be  issued  under  the  act  of  January 
fourteenth,  eighteen  hundred  and  seventy-five,  and.  the  act  of  .Tuly  fourteenth, 
eighteen  hundred  and  seventy,  shall  bear  a  rate  of  interest  not  to  exceed  four  per 
centum  per  annum.  And  full  authority  is  hereby  given  the  Secretary  of  the  Treasury 
to  issue  said  bonds  for  the  purposes  named  in  said  acts  without  limit  as  to  the  time 
they  shall  become  due  and  payable,  and  for  the  redemption  of  the  notes  issued  under 
the  act  of  July  fourteenth,  eighteen  hundred  and  ninety. 

Sec.  14.  That  the  use  of^  circulating  notes  of  and  above  the  denomination  of  ten 
dollars  issued  by  a  banking  corporation  duly  organized  under  the  laws  of  any  State, 
and  which  transacts  no  other  than  a  banking  business,  shall  be  exempt  from  taxa- 
tion under  the  laws  of  the  United  States  when  it  is  shown  to  the  satisfaction  of  the 
Secretary  of  the  Treasury  and  the  Comptroller  of  the  Currency — 

First.  That  such  bank  has  at  no  time  had  outstanding  its  circulating  notes  in 
excess  of  seventy-live  per  centum  of  its  paid  u]i  and  unimpaired  cajtital; 

Second.  That  its  stockholders  are  individuallj-  liable  for  the  redemption  of  its  cir- 
culatiug  notes  to  an  amount  equal  to  the  par  value  of  the  stock  owned  by  them,  but 
this  shall  not  be  required  in  the  case  of  persons  holding  stock  as  executors,  admin- 
istrators, guardians,  or  trustees,  if  the  assets  and  funds  in  their  hands  are  liable  in 
like  manner  and  to  the  same  extent  as  the  testator,  intestate,  ward,  or  person  inter- 
ested in  such  funds  would  be  if  living  and  competent  to  act  and  hold  the  stock  in 
his  own  name ; 

Third.  That  the-  circulating  notes  constitute  by  law  a  first  lien  upon  all  the  assets 
of  the  bank ; 

Fourth.  That  the  bank  has  at  all  times  kept  on  deposit  with  an  officer  of  the 
State,  autliorized  by  law  to  receive  .and  hold  the  same,  a  guaranty  fund  in  currency 
certificates  issued  under  section  lifty-one  hundred  and  ninety-three  of  the  Revised 
Statutes  of  the  United  States,  or  United  States  legal-tender  notes,  including  Treasury 
notes  of  eighteen  hundred  and  ninety,  equal  to  thirty  jier  centum  of  its  outstanding 
circulating  notes;  and 

Fifth.  Tliat  it  has  promptly  redeemed  its  notes  at  par  on  demand  at  its  princijial 
office,  or  at  one  or  more  of  its  branch  offices,  if  it  has  branches. 

Whenever  the  Secretary  of  the  Treasury  and  the  Coni])troller  of  Currency  shall  be 
satisfied  that  any  banking  corporation  duly  organized  under  the  laws  of  any  State, 
and  which  transacts  no  other  than  a  banking  business  as  provided  in  this  section, 
has  been  incorporated  under  the  laws  of  the  State  in  which  it  is  located,  and  that 
such  laws  I'equire — 

First.  That  its  stockholders  shall  be  individually  liable  for  the  redemption  of  its 
circuliiting  notes  to  .in  amount  equal  to  the  par  value  of  the  capital  stock  owned  by 
them ; 

Second.  That  the  circulating  notes  thereof  shall  constitute  a  first  lien  upon  all  the 
assets  of  the  l»ank  ;  and 

Third.  That  such  bank  shall  keep  on  deposit  at  all  times  with  an  official  of  the 
State,  authorized  by  law  to  receive  and  hold  the  same,  a  guaranty  fund  as  required 
in  the  fourth  paragraph  of  this  section. 

There  shall  thereupon  issue  to  said  bank  a  certificate  to  that  effect.     Said  bank 


FINANCIAL    AND    BANKING    SITUATION.  361 

may  then  issue  its  notes  of  <iml  above  the  denomination  of  ten  dollars,  as  provided 
in  this  act,  and  thereafter  the  tax  of  ten  per  centum  heretofore  imposed  by  law  u])on 
the  circulation  of  the  notes  of  State  hanks  shall  not  be  assessed  or  collected  upon  the 
notes  of  such  bank  unless  it  appears  that  said  l)ank  has  issued  circulating  notes  in 
excess  of  seventy-tive  per  centum  of  its  paid-up  and  unimpaired  capital,  or  that  its 
capital  is  impaired  and  has  remained  so  for  thirty  days,  or  that  the  bank  has  not 
kept  on  deposit  with  the  State  official  authorized  by  law  to  receive  and  hold  the 
same  a  guaranty  fund  as  re(iuired  in  the.  fourth  paragraph  of  this  section,  or  that 
said  bank  has  not  promptly  redeemed  its  notes  in  lawful  money  at  par  on  demand  at 
its  principal  office,  or  at  one  or  more  of  its  branch  othces,  if  it  has  branch  offices,  or 
that  such  State  has  repealed  any  of  such  laws;  and  no  person  or  corporation,  other 
than  the  bank  issuing  such  notes  in  violation  of  the  provisions  of  this  act,  shall  be 
liable  to  i)ay  the  said  tax  of  ten  per  centum  for  any  use  of  the  circulating  notes  of 
such  bank  after  such  bank  has  taken  out  circulation  under  this  act. 

Sec.  15.  That  any  national  banking  associatiou  and  any  banking  association 
organized  under  the  laws  of  any  State  may  deposit  with  the  Treasurer  of  the  United 
States  leg.al-tender  notes  and  Treasury  notes  issued  under  the  act  of  July  fourteenth, 
eighteen  hundred  aud  ninety,  and  receive  certificates  therefor  in  the  manner  pro- 
vided in  section  fifty-one  hundred  and  ninety -three  of  Revised  Statutes  of  the  United 
States.  And  the  Secretary  of  tlie  Treasury  may,  under  proper  rules  and  regulations 
to  be  established  by  him,  permit  the  State  banks  to  procure  and  use  in  the  prepara- 
tion of  their  notes  the  distinctive  paper  used  in  printing  United  States  securities; 
but  no  State  bank  shall  print  or  engrave  its  notes  in  similitude  of  a  United  States 
note,  or  certificate,  or  national-bank  note. 

The  Chairman.  Let  me  say  one  word  further.  It  is  not  quite  fair  to 
ask  the  Oomi)troller  to  come  up  here  again,  aud  I  hope  there  will  be  no 
interruptions.  We  will  ask  him  questious  after  we  all  get  through,  after 
Mr.  Hill,  Mr.  Fowler,  etc.,  aud  I  think  if  we  pursue  that  method  we  may 
get  through  to-day. 

CIRCULATION  SECURED  BY  BONDS. 

Mr.  Cox.  The  first  thing  I  want  to  direct  your  attention  to  is  the  first 
section  of  the  bill  as  I  uuderstand  it,  to  see  that  we  get  started  right, 
and  that  is,  the  idea  of  making  a  deposit  of  United  States  bonds  for 
the  security  of  the  circulation  ■? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  And  the  second  section,  the  important  one,  is  the  basis 
upon  which  circulation  is  issued? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  That  is  30  per  cent? 

Mr.  Eckels.  The  second  section  provides  the  manner  in  which  notes 
of  the  banks  organizing  under  the  provisions  of  this  act  may  be  issued, 
and  leaves  it  discretionary  with  the  bank  whether  it  shall  organize. 

Mr.  Cox.  I  was  going  to  refer  to  that  when  going  through  that  sec- 
tiou.  Now,  under  the  provision  of  the  second  section  they  can  take 
out  75  per  cent  of  their  paid-up  capital  stock? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  Of  that  75  per  cent,  30  per  cent  is  based  upon  the  Treasury 
notes  aud  greenback  notes? 

Mr.  Eckels.  Yes;  which  would  stand  in  the  nature  of  a  security. 

Mr.  Cox.  Now,  let  me  call  attention  to  that  section.  Under  any  plan 
which  you  have  examined,  or  the  one  you  have  suggested  yourself, 
does  it  not  involve  the  idea  that  the  Government  must  in  some  way 
stand  as  a  guarantor  for  the  circulating  notes,  either  by  a  guarantee  of 
bonds  or  in  some  other  way? 

Mr.  Eckels.  In  all  of  the  plans  which  have  been  suggested  so  far 
the  notes  to  be  issued  by  the  national  banks  are  guaranteed  by  the 
Government. 

Mr.  Cox.  The  Government  standing  good  for  their  ultimate  redemp- 
tion? 

Mr.  Eckels.  Yes. 


362  FINANCIAL   AND    BANKING    SITUATION. 


ISSUE   OF   CIRCULATING-  NOTES. 

Mr.  Cox.  In  tliis  section,  as  presented  here,  the  30  per  cent  that  is 
issued  on  the  greenbacks  or  Treasury  notes — I  treat  them  all  the 
same — would  be  the  guarantee  of  the  Government  for  that  amount  of 
the  circulation.  The  remainder  of  the  circulation,  if  taken  out,  would 
be  secured  by  the  assets  of  the  bank,  a  first  lien,  etc. 

Mr.  Eckels.  In  so  far  as  the  30  per  cent  notes  are  concerned,  they 
are  absolutely  secured  to  the  note  holder  by  a  deposit  security,  and  the 
Government  is  absolutely  secured  against  loss.  The  balance  of  the  notes 
are  secured  by  the  assets,  the  Government  guaranteeing  the  payment 
of  the  notes,  recouping  itself  from  the  assets,  together  with  the  guar- 
antee fund,  which  is  to  be  provided  by  a  tax. 

SAFETY-FUND   PROVISION. 

Mr.  Cox.  A  safety  fund,  I  think  the  Secretary  calls  it  here,  so  that 
if  the  Government  should  be  compelled  to  pay  the  45  per  cent  issued 
upon  the  assets  of  the  bank  there  will  be  no  danger  of  the  Goverment 
losing  anything,  because  it  has  all  the  assets  of  the  bank,  first,  and  the 
stockholders'  liability,  and,  in  addition  to  that,  has  the  safety  fund  of 
5  per  cent  which  has  accumulated  in  the  hands  of  the  Treasury? 

Mr.  Eckels.  I  do  not  think  there  would  be  any  danger  of  the  Gov- 
ernment losing  anything,  although  there  might  be  a  possibility  of  its 
doing  so.  There  certainly  would  be  no  danger  to  the  note  holder, 
because  he  has  the  Government  guaranty, 

Mr,  Cox.  That  is,  as  I  regard  it,  a  very  important  section  of  the  bill. 
It  makes  a  radical  change  in  the  present  law,  with  this  safety  fund  of 
5  per  cent  in  the  hands  of  the  Government,  and  liability,  etc.  We  have 
spoken  of  the  assets  of  the  bank ;  has  it  not  been  already  demonstrated 
by  the  present  banking  system  that  the  amount  of  money  which  is  held 
in  the  Treasury  as  a  protection  against  the  outstanding  notes — this 
same  thing  might  be  called  a  safety  fund — has  not  that  proven  beyond 
any  dispute  adequate  for  the  protection  of  the  Government? 

Mr,  Eckels.  Yes;  the  5  per  cent  has  been  ample  to  make  current 
redemption. 

Mr.  Cox.  One  more  idea  upon  this  section.  It  further  conveys  or 
carries  the  idea  that  in  the  redemption  of  notes  the  banks  are  their  own 
redeemers. 

Mr,  Eckels,  They  are  for  current  redemption;  they  provide  a 
redemption  fund  for  the  purpose  of  making  current  redemption. 

Mr.  Cox,  Either  over  their  own  counters 

Mr.  Eckels.  Or  through  such  agencies  as  the  Comptroller  may 
establish. 

Mr.  Cox.  Passing  from  that  section  to  this  general  question,  have 
you  been  able  to  find  any  serious  objection  contained  in  the  first  section, 
outside  of  one  to  which  I  want  to  call  your  attention  in  a  minute — that 
is,  putting  the  discretionary  power  in  the  bank ;  I  want  to  call  your 
attention  specially  to  that.  Here  is  a  banking  system,  there  is  no  doubt 
about  the  solvency  of  it,  there  is  no  doubt  about  the  notes  being  good, 
and  tlie  Government  is  not  paying  to  the  banks  interest  u])on  bonds  at 
the  same  time  it  is  furnishing  that  circulation,  and  I  think  that  is  the 
one  thing  that  makes  the  system  now  most  UDi)opular. 


FINANCIAL    AND    BANKING    SITUATION.  363 


SECURITY   OF   THE   CIRCULATION. 

Mr.  Eckels.  I  think  tliat  for  the  security  of  the  note  that  section  is 
ample,  and  its  provision  niali:esthe  note  absolutely  secure. 

Mr.  Cox.  That  covers  the  most  important  question,  in  my  judgment, 
of  all  of  these  bills.  As  you  remarked  the  other  day,  any  banking 
system  has  to  be  so  framed  that  it  will  induce  meu  of  sound  judg- 
ment to  take  hold  of  it  and  go  into  it,  ISTow,  in  this  section  there  is 
nothing  compulsory  about  it  that  I  can  see. 

Mr.  Eckels.  The  bill  as  first  prepared,  as  1  remember,  made  it  abso- 
lutely incumbent  upon  the  bank  to  go  into  the  system,  but  afterwards 
it  was  moditied  so  it  was  left  discretionary  with  it.  If  a  bank  wished 
to  issue  notes  against  bonded  securities  it  could  do  so,  and  if  it  did  not 
wish  to  do  so  it  could  issue  them  under  this  plan. 

ELASTICITY. 

Mr.  Cox.  As  my  memory  serves  me,  in  the  first  preparation  of  the 
bill  the  tax  upon  the  circulation  taken  out  on  the  bonded  circulation 
was  increased  so  as  to  drive  them  into  this  system.  That  was  modified 
afterwards.  Now  the  practical  part  of  it  is  under  this  system,  with  the 
power  of  the  bank  to  take  out  75  per  cent  of  circulation  and  45  per 
cent  on  the  basis  of  their  assets,  etc.  Would  not  that  give  the  currency 
of  the  country  at  least  such  elasticity 

Mr.  Eckels.  Within  the  limit  allowed  of  notes  to  be  issued  against 
assets  you  would  probably  find  all  the  necessary  elasticity  desired  in 
the  currency.  The  point  in  this  bill,  which  it  seems  to  me  is  of  a  good 
deal  of  moment,  is  that  as  at  present  drawn  it  accomplishes  only  the 
temporarily  impounding  of  the  legal  tenders,  instead  of  their  comjilete 
destruction.  It  is  provided  that  the  banks  shall  deposit  with  the 
Treasury  in  legal  tenders  and  Treasury  issues  an  amount  equal  to  30 
per  cent  of  the  circulating  notes  applied  for,  which  are  to  remain  with 
the  Treasurer  until  the  bank  ceases  to  do  business  or  until  the  circu- 
lation of  the  bank  is  reduced,  whereupon  they  are  released  and  returned 
to  the  bank.  Such  a  course  would  result  in  simply  putting  them  out 
again  for  the  purpose  of  being  currently  redeemed  by  the  Treasury. 
The  provision  should  be,  instead,  that  when  the  bank  ceases  doing  busi- 
ness the  legal  tenders  and  Treasury  notes  deposited  shall  thereupon  be 
redeemed  and  canceled  by  the  Government,  or  when  the  bank  reduces 
its  circulation  so  much  of  the  legal  tenders  which  are  thereby  released 
shall  be  paid  and  canceled. 

Mr.  Cox.  That,  of  course,  would  be  a  gradual  way  of  taking  them  up. 

Mr.  Eckels.  That  would  get  them  out  of  the  way. 

ISSUING  BONDS   TO   RETIRE    GREENBACKS. 

Mr.  Cox.  Eventually  that  is  getting  them  out  of  the  way.  On  that 
point  you  are  perfectly  aware  of  the  strong  opposition  there  is  in  the 
country  against  the  issue  of  bonds — I  do  not  care  how  low  the  rate  of 
interest  is — with  which  to  take  up  these  greenback  notes  and  destroy 
them.  Now,  would  it  not  be  better — somewhat  of  a  compromise,  I 
admit — to  take  up  this  idea  in  this  bill  and  make  that  deposit  of  30  per 
cent  of  the  capital  stock  of  these  notes,  and  then  as  the  banks  went 
out,  or  as  they  undertook  to  redeem  or  take  up  those  greenbacks — I 
think  the  word  "redeem "  is  not  projier — but  to  take  them  up  and  cancel 


304        .  FINANCIAL    AND    BANKING    SITUATION. 

them  and  tlien  put  the  bonds,  if  you  have  no  money,  in  tlieir  place, 
instead  ofnndertakino-  to  issue  the  whole  amount  of  bonds  and  redeem- 
ing the  Avhole  of  the  notes? 

Mr.  Eckels.  I  do  not  think  it  "would  be  better,  nor  do  I  tliink  it  would 
be  as  good,  but  you  might  be  able  to  have  it  accepted  by  Congress.  Of 
course  you  have  to  meet  i)rejudi(!e  and  you  have  to  meet  opposition  in  any 
measure  you  may  present.  A  baidv  bill  can  not  be  successfully  estab- 
lished, however,  on  any  other  than  a  correct  basis.  Certainly  if  this 
bill  should  be  enacted  into  law  there  ought  to  be  a  provision  tliat  when 
these  legal  tenders  are  deposited  to  secure  circulation  they  will  be  at 
once  destroyed,  and  thus  an  end  made  of  tliem.  When  the  bank  goes 
out  of  business  the  Covernment  should  then  return  in  gold  to  the  bank 
depositing  the  amonnt  in  dollars  of  legal  tenders  theretofore  deposited 
by  the  bank.  The  same  rule  should  prevail  when  it  reduces  its  circu- 
lation. It  ought  to  be  distinctly  understood  that  when  the  Treasury 
issues  thus  go  into  the  Treasury  for  the  purpose  of  securing  circulation 
that  is  the  end  of  them. 

TAX  UPON   CIRCULATION. 

Mr.  Cox.  I  think  we  have  got  the  germ  of  that  section.  The  third 
section  fixes  the  tax  upon  circulation,  and  that  is  all. 

Mr.  Eckels.  It  has  been  found  by  careful  calculation  that  one-fourth 
of  1  per  cent  is  a  suflicient  amount  of  tax  to  meet  all 

Mr.  Cox.  This  is  one-half  of  1  per  cent,  and  it  is  payable  every  six 
months,  you  see. 

Mr.  Eckels  (continuing).  That  one-fourth  of  1  per  cenit  is  sufficient 
to  meet  all  the  necessary  expenses. 

iMr.  Cox.  Then  it  might  be  well  provided  that  on  the  1st  of  January 
and  the  1st  of  July  of  each  year,  instead  of  paying  one-fourth,  it  is  well 
to  put  in  there  one-eighth,  of  1  per  cent? 

Mr.  Eckels.  Yes;  as  Mr.  Johnson  said  the  other  day,  it  is  wise  to 
keep  the  tax  on  circulation  as  low  as  possible,  in  order  to  make  bank 
notes  as  cheap  as  possible  to  the  institution  which  intends  taking  them 
out. 

Mr.  ISTewlands.  Is  that  tax  payable  in  gold,  or  how? 

Mr.  Cox.  No ;  it  is  payable  in  lawful  money.  You  mean  in  this  section 
of  the  bill?  This  bill  is  based  on  the  idea  that  anything  can  be  dis- 
charged in  lawful  money. 

Mr.  Newlands.  The  circulating  notes  are  lawful  money? 

Mr.  Cox.  Whatever  is  legal  tender  by  law.  That  is  the  idea  this  bill 
isbased  on — that,  with  whatever  is  established  as  legal-tender  money  by 
the  Government  it  can  redeem  the  notes  and  pay  the  tax ;  but  it  does 
not  undertake,  of  course,  to  decide  what  is  legal-tender  money,  and  it 
ought  not  to  be  fixed  in  a  bill  of  this  kind,  I  think. 

The  fourth  section 

Mr.  l^CKELS.  That  is  the  section  I  have  been  talking  about.  It  does 
not  jnake  the  provision  which  I  tliink  ought  to  be  nuide,  if  such  a  system 
should  be  entered  ui)on,  of  permanently  retiring  your  legal  tenders. 

Mr.  Cox.  One  moment,  so  as  to  get  it  clear  to  the  reporter,  here. 
Your  idea  about  that  is,  it  would  be  an  imjnovement,  whether  it  would 
be  satisfactory  or  not,  upon  this  bill,  that  when  those  notes  are  depos- 
ited for  circulation — 1  mean  Treasury  notes,  etc. — and  the  circulation 
is  taken  out,  there  should  be  distinct  and  full  understanding  that  it  is 
the  last  of  those  notes,  as  far  as  disturbing  the  Treasury  is  eoncerned? 

Mr.  Eckels.  Yes;  the  plan  under  this  bill  would  be  to  pay  and 
cancel  them  gradually,  and  do  it  Avithout  issuing  bonds. 


FINANCIAL    AND    BANKING    SITUATION.  365 

Mr,  Cox.  Let  me  call  your  attentiou  to  another  i)oint  in  thivS  section 
we  are  on.     This  is  a  broader  provision  than  returning  the  note: 

And  thereupon  a  sum  equal  to  30  per  cent  of  such  canceled  notes  shall  be  returned 
to  the  association,  in  lawful  money  of  the  United  States. 

It  does  not  make  it  imperative  to  return  tlie  notes  at  all,  but  makes 
it  imperative  to  return  lawful  money  of  the  United  States. 

Mr.  Eckels.  That  gives  the  Government  the  discretion  to  return  its 
legal  tenders  and  Treasury  notes. 

Mr.  Cox.  (Jr  any  other  money  which  is  legal  tender.  The  next  section 
requires  a  safety  fund,  which  I  do  not  think  we  need  to  refer  to. 

There  is  the  lifth  section.  I  think  I  have  never  heard  that  the  Comp- 
troller objected  to  that  isolated  section. 

Mr.  Eckels.  That  is  a  very  safe  precautionary  measure. 

Mr.  Cox.  In  the  discussion  we  had  in  the  House  there  was  no  criti- 
cism on  that  which  I  heard? 

Mr.  Eckels.  No. 

INVESTING  SAFETY  FUND  IN  BONDS. 

Mr.  Cox.  Then  the  sixth  section  gives  the  power  to  invest  the  safety 
fund  in  b'mds,  and  there  can  be  no  objection  to  that.  The  interest 
accumulating  upon  the  bonds  so  invested  goes  to  increase  the  safety 
fund.    I  should  say  there  can  be  no  serious  trouble  about  that. 

The  seventh  section 

Mr.  Eckels.  That  is  the  section  covering  the  discretionary  power 
vested  in  the  banks  of  going  into  this  system  if  deemed  best  on  their 
part  to  do  so. 

Mr.  Newlands.  Can  it  have  both  kinds  of  circulation  at  once  under 
your  bill? 

Mr.  Cox.  Here  is  the  point,  that  the  banks  are  not  compelled  to  go 
in  under  this  system.  They  may  go  in  under  it  and  it  gives  them  the 
choice.  So  far  as  the  circulating  notes  are  concerned  there  is  no 
distinction. 

Mr.  Newlands.  I  understand  that  it  contemplates  circulating  notes 
issued  on  bonds  and  also  circulating  notes  issued  under  the  provision 
of  this  act? 

Mr.  Cox.  Permit  me  to  say  I  am  discussing  the  bill  from  my  view  of 
it.  The  Secretary  did  not  think  that  way,  but  I  think  they  should  be 
compelled.  Section  eight  is  a  repeal  of  some  sections  we  are  all  famil- 
iar with,  which  ought  to  be  repealed  to  make  the  bill  harmonious. 

REDUCING   CIRCULATION. 

Mr.  Eckels.  As  I  remember  it,  the  last  section  mentioned,  which  it 
is  proposed  to  repeal,  is  that  section  of  the  banking  act  in  which  it  is 
provided  that  after  a  bank  has  reduced  its  circulation  it  is  not  permitted 
to  take  out  new  circulation  until  the  lapse  of  six  months? 

Mr.  Cox.  Let  me  see;  that  is  right.     That  is  the  first  one. 

Mr.  Hill,  And  it  also  requires  the  total  withdrawal  of  not  to  exceed 
$3,000,000  a  month.    That  repeals  that  ])rovision. 

Mr.  Eckels.  The  design  being  that  there  should  not  be  a  hard-and- 
fast  line  fixed  relative  to  circulation,  but  in  a  large  measure  it  should 
be  left  discretionary  to  the  banks  to  say  whether  or  not  they  should 
reduce  their  circulation,  and  when. 

Mr.  Hill.  Pardon  me,  this  section  does  not  leave  it  discretionary 
with  the  banks.  They  must  have  the  written  consent  of  the  Secretary 
of  the  Treasury.     Would  you  approve  that? 


366  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  31, v  own  view  of  the  matter  is  to  leave  it  entirely  dis- 
cretionary witli  the  banks.  As  I  have  said  a  number  of  times  before, 
I  think  that  the  banks  are  best  able  to  judge  in  the  matter,  and  that 
they  will  7iot  do  anything  in  the  way  of  reducing  circulation  that  is 
going  to  injuriously  atiect  communities  in  whose  prosperity  they  are 
interested  for  their  own  i)rosperity. 

COMBINATION   BY   THE   BANKS. 

Mr.  Cox.  That  is  evidently  intended  to  meet  the  matter  of  prevent- 
ing any  combinations  by  the  banks. 

Mr.  Hill.  J)o  you  believe  that  such  a  combination  is  possible? 

Mr.  Eckels.  No;  and  I  do  not  think  it  is  probable,  either. 

Mr.  Cox.  There  is  more  in  that  section  than  that.  On  the  top  of  page 
6,  that  section : 

As  directs  the  Secretary  of  the  Treasiiry  to  receive  dei)Osits  of  gold  and  to  issue 
certificates  thereon. 

That  stops  that? 
Mr.  Eckels.  Yes. 
Mr.  Cox.  The  next  is: 

And  section  31  of  the  act  approved  June  3,  1864,  entitled  "An  act  to  provide  a 
national  currency  secured  by  a  pledge  of  United  States  bonds,  and  to  provide  for  the 
circulation  and  the  redemption  thereof." 

Of  course  that  is  repealed  in  harmony  with  the  act. 

And  sections  5191  and  5192  of  the  Revised  Statutes  of  the  United  States,  and  all 
acts  and  parts  of  acts  amendatorj-  thereof,  be,  and  the  same  are  hereby,  repealed. 

I  do  not  call  to  mind  exactly  what  those  sections  are. 
Mr.  Eckels.  I  think  those  are  sections  relative  to  any  circulation 
being  again  taken  out  after  it  has  been  once  withdrawn. 
Mr.  Cox.  That  is  it.    Now  you  can  see  the  proviso : 

That  no  banking  association  taking  out  circulation  under  this  act  shall  retire  or 
cancel  any  of  its  bank  notes  without  the  written  consent  of  the  Secretary  of  the 
Treasury. 

Mr.  Eckels.  As  a  corollary  to  that,  if  you  say  that  a  bank  shall  not 
withdraw  its  circulation  until  consent  has  been  obtained  of  some  ofticial, 
it  would  follow  naturally  that  a  bank  must  take  out  circulation  if  it  was 
deemed  best  by  some  public  ofticial. 

The  Chairman.  Do  you  mean  to  say  it  is  in  the  bill,  or  ought  to  be? 

Mr.  Eckels.  I  say  it  would  follow  as  a  natural  corollary. 

The  Chairman.  And  therefore  ought  to  be  in  the  bill"? 

Mr.  Eckels.  I  do  not  believe  either  i)rovision  ought  to  be  in  the  bill. 
Neither  would  be  wise. 

The  Chairman.  But  if  one  is  the  other  ought  to  be;  is  that  your 
position  ? 

volume  of  currency. 

Mr.  Eckels.  Yes;  but  I  do  not  believe  that  either  ought  to  be  in 
the  bill.  It  goes  to  the  same  thing.  It  is  undertaking  to  regulate  the 
volume  of  the  currency  by  some  other  means  than  through  the  knowl- 
edge had  through  the  various  banks  designed  to  su])ply  their  com- 
munities with  tlie  necessary  amount  of  circulating  medium. 

Mr.  Cox.  Pardon  me  just  in  that  connection.  There  is  the  point 
that  is  the  whole  meat  of  it,  about  compelling  a  bank  to  take  out  circu- 
lation.    Suiipose  we  j^ut  the  proposition  in  this  shape,  that  when  the 


FINANCIAL    AND    BANKING    SITUATION.  367 

circulation,  as  provided  for  by  law,  whatever  it  may  be — not  going 
back  to  that,  because  that  is  tlie  review  of  what  we  have  gone  over — 
but  suppose  we  reduce  the  tax  upon  circulation  to  one-fourth  of  1  per 
cent,  or  reduce  it  evea  lower  than  that,  making  the  tax  alone  sufiicient 
to  pay  the  expenses  of  the  preparation  of  the  notes,  etc. 

Now,  then,  you  reduce  the  tax  that  way;  what  would  be  your  idea 
and  what  would  be  the  serious  objection  to  the  bank  being  compelled 
to  take  out  circulation  whether  they  wish  it  or  not,  and  i)ut  the 
responsibility  upon  them  to  issue  as  they  see  proper,  and  always  have 
a  fund  ready  to  the  extent  of  their  circulation  provided  by  law  to  be 
put  in  circulation?  Now,  pardon  me  one  moment,  because  we  struck 
that  point  the  other  day,  and  I  am  sure  we  did  not  exactly  understand 
each  other.  The  moment,  of  course,  the  circulation  is  issued  in  the 
Treasury  Department  that  is  charged  to  the  bank.  Now,  I  think,  there 
could  be  but  one  point  to  which  the  bank  could  make  serious  objection, 
and  that  would  be  the  tax  that  is  placed  upon  the  circulation  the  moment 
it  is  issued  from  the  Treasury  Department.  Eeduce  that  tax  to  one- 
eighth  of  one  per  cent  or  to  the  amount  of  the  expense  the  Government 
incurs  in  the  preparation  of  the  notes.  They  are  charged  with  the  full 
circulation,  and  the  tax,  whatever  it  is  fixed  at,  is  a  tax  on  the  full  cir- 
culation. Would  not  that  have  the  effect  of  inducing  the  banks  to 
take  out  the  circulation  and  hunt  for  investments  for  the  money? 

If  you  make  the  objection  that  if  you  do  you  would  make  an  iron 
rule  as  to  the  extent  of  circulation,  of  course  you  have  got  a  rule  fixed 
as  to  the  amount  of  circulation,  but  as  to  the  use  of  it  you  have  got  no 
rule  fixed.  Now,  in  my  locality  at  certain  times  we  need  more  circula- 
tion than  at  other  times,  and  the  bank  getting  advantage  of  this  full 
circulation  we  are  providing  for  takes  it  under  the  reduced  tax  of  one- 
eighth  or  one-fourth  of  1  per  cent.  Then  we  have  no  trouble,  as  I  see 
it,  in  having  the  amount  of  circulation  which  meets  any  requirement  of 
our  people.  That  is  the  question  my  friend,  Mr.  Johnson,  is  very  much 
troubled  with.  If  we  do  that  and  reduce  the  tax,  say,  to  one-eighth  of 
1  per  cent,  or  the  cost  of  what  is  necessarily  expended  about  it,  the 
bank  starts  with  a  full  amount  of  circulation,  and  they  pay  thaf? 

Mr.  Spalding.  Compel  them  to  use  it? 

Mr.  Cox.  It  makes  it  to  their  interest  to  do  so,  because  they  are 
paying  that  per  cent  without  any  profit  unless  it  is  issued.  That  is 
what  we  want  to  get  the  banks  interested  in.  The  gentleman  remarks 
that  when  the  pinch  comes  they  would  have  no  surplus.  This  present 
bank  law  is  defective  in  that  when  the  pinch  comes  they  can  not  get 
the  money.  I  want  to  get  that  point  out  there  and  then  pass  to 
another. 

Mr.  Eckels.  Undoubtedly,  as  you  state,  Mr.  Cox,  your  people  at  one 
time  need  more  money  than  at  another,  and  for  that  very  reason  I 
should  leave  it  entirely  to  the  banks,  knowing  these  various  conditions, 
to  say  how  much  circulation  they  would  keep  out.  Another  thing,  if 
you  would  keep  out  this  large  amount  of  circulation,  although  you  do 
reduce  the  tax  you  curtail  the  availability  of  the  banks'  funds  to  a 
certain  extent  by  an  unnecessary  amount  tied  up  in  a  redemption  fund. 
If  they  are  compelled  to  keep  out  all  the  circulation  they  must  always 
keep  a  redemption  fund  of  5  per  cent  locked  up. 

Mr.  Cox.  But  they  do  not  keep  it  out.  It  is  a  matter  of  discretion 
with  the  banks. 

Mr.  Eckels.  They  have  it  from  the  Treasury 

Mr.  Cox.  And  they  are  charged  the  per  cent. 

Mr.  Eckels.  They  are  compelled  to  keep  a  redemption  fund  upon 


368  FINANCIAL    AND    BANKING   SITUATION. 

the  amount   of  circulation   which    lias   "been   issued   to  them   by  the 
Treasury. 

Mr.  Cox.  But  you  distinctly  understand  me  that,  so  far  as  jjutting  it 
into  circulation  and  using  it  as  money  is  coucerned,  it  is  a  matter  of 
discretion,  entirely,  with  the  banks.  It  is  not  that  they  shall  put  [t 
out,  because  uo  bank  could  live  uuder  a  law  which  comi)elled  it  to  put 
out  money. 

MONEY   ACCUMULATES   IN   LAKGE    CENTERS. 

KovT,  let  me  call  your  attention  back  to  the  remaining  point,  which 
is  to  me  the  most  interesting  thing  in  all  of  these  bills,  because  I  am 
trying  to  get  my  bill  into  the  best  shape  we  can.  These  banks,  we 
assume,  have  not  got  that  circulation  in  their  banks  from  the  Treas- 
ury vaults,  but  it  is  charged  up  to  them.  They  (;an  get  it  any  day 
they  want  it.  Now,  the  objection  seems  to  be  that  you  are  forcing  the 
banks  to  take  out  circulation  when  the  banks  decide  there  is  no  neces- 
sity for  it.  Let  me  show  you  how  these  things  work.  I  have  no  doubt 
you  are  aware  that  whenever  a  crisis  comes  in  our  country,  when  money 
is  needed  in  the  agricultui'al  part  of  the  country,  all  the  banks  in  the 
great  centers,  where  they  have  got  abundant  money  and  more  money 
than  they  need,  begin  to  make  overtures  to  us,  and  then  they  begin  to 
try  and  supjdy  us  with  the  money.  Now,  then,  we  have  to  be  governed 
entirely  by  the  rate  of  interest  which  they  charge,  and  I  suppose  every 
bank  in  the  United  States  keeps  a  deposit  in  ISTew  York  and  has  a  cor- 
respondent there.  Well,  then,  we  are  required  not  only  to  keep  the 
amount  deposited  there,  but  when  we  undertake  to  draw  on  them  and 
get  money  from  them  the  rate  we  pay  is  controlled  by  the  rate  they 
establish  in  these  money  centers. 

Mr.  Eckels.  I  do  not  know  exactly  how  j^ou  can  prevent  money  from 
drifting  to  the  large  centers. 

Mr.  Cox.  There  is  but  one  way  to  do  it,  and  that  is  tlie  cpiestion  of 
interest  and  money  hunting  the  place  where  it  will  pay  the  best.  That 
is  the  only  rule  on  earth  by  which  you  can  work  it. 

Mr.  Eckels.  Certainly. 

BATES   OF   interest. 

Mr.  Cox.  There  is  but  one  way  you  can  control  money  flowing  to  and 
fro  and  hunting  the  place  where  it  will  j^ay  the  best.  Give  it  natural 
course  and  it  will  hunt  the  ])lace  where  it  will  pay  the  best.  1  do  not 
want  to  take  up  nnich  time  of  the  committee,  but  that  ])oint  I  wanted 
to  elucidate.  Let  nu'  take  a  ])ractical  illustration  of  it.  We  couunenc^e, 
say  in  October,  with  demands  on  the  little  banks — and  most  of  them 
in  my  country  are  little  banks — and  the  demand  for  money  is  such  that 
w^e  can  not  furnish  it  and  we  soon  run  to  our  limit  and  must  stop. 
What  is  the  next  step  ?  Why,  to  protect  our  customers  and  hohl  them 
in  line,  we  take  their  notes  and  indorse  the  note.  Of  course  the  indorse- 
ment of  a  bank  is  what  passes  it  in  the  centers;  it  is  not  the  individual  on 
the  note  at  all.  Then  we  get  that  money  and  we  bring  it  back  to  accom- 
modate our  customers  the  best  we  can,  but  we  can  not  do  that  for  noth- 
ing. We  have  got  to  have  something  to  i)ay  us  for  the  risk  incurred, 
and  it  has  been  the  result  for  the  last  fifteen  years  that  there  never  has 
been  any  money  whicli  has  gone  out  of  our  banks,  wliich  are  in  the  cen- 
tral portion  of  that  country,  that  the  man  getting  it  did  not  pay  above 
8  per  cent  for  it.    Now,  if  these  banks  had  full  circulation — you  say 


FINANCIAL    AND    BANKING    SITUATION.  369 

they  do  not  need  it  all  the  time — that  is  true;  but  if  they  should  have 
full  circulation  when  it  becomes  to  their  interest,  whenever  the  opjior- 
tunity  suggests  itself  they  will  i)ut  it  in  circulation. 

Mr.  Beosius.  But  they  have  the  cost  of  keeping  it? 

Mv.  Cox.  If  the  banks  are  com]ielled  to  take  out  their  full  circulation 
I  will  vote  for  any  tax  sufificient  to  jiay  the  expenses  of  getting  the  cir- 
culation, because  the  tax  on  circulation  is  never  paid  by  the  bank;  it 
is  i)aid  by  the  customers. 

Here  comes  the  ninth  section.  The  ninth  section  gives  the  power  of 
redemption  of  these  legal-tender  notes  when  there  is  a  surplus  in  t'ae 
Treasury. 

Mr.  Eckels.  That  is  virtually  a  reenactment  of  a  measure  which  at 
one  time  was  placed  upon  the  statute  books,  providing  for  the  redem.p- 
tion  and  cancellation  of  Treasury  notes  when  a  certain  amount  of 
national-bank  notes  had  been  issued. 

JMr.  Cox.  You  will  tind  that  section  almost  language  for  language  in 
the  resumption  act. 

Mr.  Eckels.  Yes;  it  was  designed  to  allay  any  fear  of  contractioUj 
or  to  prevent  any  contraction  in  tlie  retirement  of  the  legal  tenders. 

GETTING    SILVER    COIN    INTO    CIRCULATION. 

Mr.  Cox.  That  ninth  section  also  embraces  the  idea  that  this  circula- 
tion furnished  by  the  banks  shall  be  in  denominations  of  $10  up;  it  is 
easy  to  understand  what  that  is  for. 

Mr.  Eckels.  I  was  going  to  say,  in  regard  to  the  ninth  section,  that 
it  makes  a  change  in  the  present  banking  act  bj'  ])rohibiting  the  issue 
of  five-dollar  bank  bills. 

Mr.  Cox.  Yes;  that  is  in  connection  with  anoth  t  idea. 

Mr.  Eckels.  I  suppose  the  idea  of  that  is  that  by  this  provision  the 
silver  coin  will  be  gotten  into  circulation. 

Mr.  Cox.  That  is  it;  that  is  certainly  the  idea. 

Mr.  Eckels.  In  other  words  it  is  a  method  of  forcing  silver  into  the 
pockets  of  people  whether  they  want  to  carry  it  or  not.  I  hardly  believe 
this  can  be  done.  So,  too,  I  am  not  sure  but  that  a  great  inconvenience 
is  created  by  not  permitting  the  five-dollar  bills  to  be  issued. 

Mr.  Cox.  Well,  of  course  that  hangs  distinctly  on  the  idea  that  if  the 
silver  coin  is  as  acceptable  as  $5  there  will  be  no  trouble  about  that, 

RESERVE    MONEY. 

The  tenth  section  goes  further  than  atc  have  gone.  It  is  in  relation 
to  ]vroviding  for  the  reserve — that  this  same  character  of  note  shall  be 
hold  as  a  reserve. 

Mr.  Eckels.  The  present  law  requires  that  the  reserve  shall  be  kei)t 
in  lawful  money.     This  is  in  line  with  the  other  provision  of  the  act 
to  get  the  legal  tenders  and  Treasury  notes  out  of  the  way  and  restrict 
ing  the  reserves  held  at  least  to  the  extent  of  one-half  in  this  partic- 
ular kind  of  currency? 

Mr.  Cox.  Y^es.  Of  course  the  great  object  of  that  is  to  try  and  stop 
these  raiders. 

Mr.  Eckels.  The  whole  design  of  this  bill  is  to  relieve  the  Treasury 
by  getting  the  legal  tender  and  the  Treasury  notes  out  of  the  way  of 
current  redemption. 

Mr.  Cox.  And  escape  the  responsibility  of  issuing  bonds  for  that 
purpose. 

CUR 24 


370  FINANCIAL    AND    BANKING    SITUATION. 


THE    ''ENDLESS    CHAIN."' 

Mr.  Johnson.  If  you  will  let  me  ask  a  question  on  that  point,  what 
per  cent  of  the  greenbacks  and  Treasury  notes,  which  constitute 
what  might  be  termed  tlic  "endless  chain,"  would  be  imprisoned  or 
impounded  by  this  act  if  it"  shonld  go  into  eliect,  in  your  opinion  ?  Are 
you  able  now  to  make  sncli  an  estimate.' 

Mr.  Eckels.  No;  1  could  not,  because  under  the  provisions  of  this 
act  it  makes  it  discretionary  with  the  existing  banks  wliether  they  will 
go  into  it,  and  you  have  no  basis  ui)on  which  to  calculate. 

Mr.  Johnson.  Suppose  it  leaves  one  third  in  circulation;  is  not  the 
Treasury  just  as  nuich  in  danger  as  if  all  were  out?  Would  it  not 
result  that  those  in  circulation  would  be  used  up  more  rapidly? 

Mr.  Eckels.  I  do  not  think  the  danger  would  be  as  great,  but  I 
think  as  long  as  a  single  one  is  out  there  is  danger. 

Mr.  Johnson.  One  other  question  in  that  connection.  In  your  opin- 
ion would  the  banks  be  willing  to  accept  the  provisions  of  this  bill? 
Would  not  the  safety  fund  requiring  banks  to  guarantee  each  other's 
solvency  be  a  deterrent? 

bankers   deserted    the   BALTIMORE    PLAN. 

Mr.  Eckels.  The  only  thing  I  know  is  that  after  a  plan  virtually 
embracing  a  good  many  provisions  of  this  bill  was  approved  of  by  a 
convention  of  bankers  at  Baltimore,  they  all  deserted  it  wheu  it 
appeared  in  Congress  in  the  form  of  a  bill. 

Mr.  Cox.  You  mean  the  committee? 

Mr.  Eckels.  No;  not  the  committee,  the  bankers. 

Mr.  Cox.  There  was  not  a  man  on  the  committee  who  voted  for  it? 

Mr.  Eckels.  They  made  the  point  that  solvent  banks,  banks  prop- 
erly conducted,  ran  too  much  risk  for  banks  which  were  not  properly 
conducted.  The  expectation,  of  course,  would  be  that  under  this  bill 
we  would  have  fairly  well-conducted  banks.  It  is  probable  that  a  very 
proper  estimate  of  what  the  number  of  failed  banks  would  be  under  it, 
with  the  same  character  of  management,  could  be  had  by  ascertaining 
the  number  we  have  had  in  the  last  thirty  years  in  the  same  number  of 
banks. 

Mr.  Cox.  There  is  no  provision  in  this  bill  anywhere  that  one  bank 
shall  guarantee  the  notes  of  another  bank. 

Mr.  Eckels.  That  was  in  the  original,  but  it  is  left  out  in  this  bill. 

Mr.  Cox.  We  knocked  that  out. 

Mr.  Newlands.  Is  that  the  reason  the  bankers  objected  to  it? 

Mr.  Eckels.  That  was  one  of  the  principal  reasons. 

Mr.  Cox.  You  could  not  put  such  a  banking  system  into  eft'ect  at  all. 

increase  of  gold  in  the  treasury. 

Mr.  Hill.  With  regard  to  the  section  here  which  provides  for  the 
imprisoning  or  impounding  of  greenbacks  and  Treasury  notes,  I  want 
to  call  your  attention  to  the  fact  that  we  have  got  .$14r),(U){),()(K)  of  gold 
in  the  Treasuiy  and  it  is  increasing,  and  that  the  Treasury  notes  and 
greeid)acks  in  the  Treasury  are  constantly  decreasing,  and  I  want  to 
ask  you  if  you  think  that  the  increase  of  gold  under  those  circujustances 
is  any  evidence  of  a  safe  condition  of  the  Treasury? 

Mr.  Eckels.  Not  in  the  least. 

Mr.  IIiLL.  It  is  an  evidence  of  an  unsafe  condition,  is  it  not? 


FINANCIAL    AND    BANKING    SITUATION.  371 

Mr.  Eckels.  It  is  certaiuly  not  an  indication  of  a  safer  condition. 
It  is  simply  an  indication  tliatfor  tlie  time  being  people  have  qnit  pre- 
senting- legal  tenders  for  redenii)tion. 

Mr.  Hill.  But,  of  course,  there  is  a  great  deal  of  liability  for  calls 
on  that,  from  the  fact  the  Treasury  notes  and  greenbacks  arc  out  in 
greater  number. 

Mr.  Eckels.  Yes. 

POSSIBILITIES   OF   ANOTHER   PANIC. 

Mr.  Brosius.  Does  not  an  accumulation  of  gold  in  the  Treasury 
indicate  a  return  of  confidence  in  our  monetary  conditions'? 

Mr.  Eckels.  That,  with  other  conditions. 

Mr.  Hill.  Hoes  it  not  also  show  that  in  the  case  of  a  sudden  i^anic 
occurring  the  Treasury  is  far  more  exposed  than  if  the  greenbacks  were 
entirely  locked  up  1 

Mr.  Eckels.  Yes;  if  another  attack  is  made  upon  the  gold  in  the 
Treasury  we  would  be  in  a  great  deal  worse  condition  than  we  have 
been  at  any  time  during  the  last  few  years. 

Mr.  Spalding.  They  have  learned  how. 

POPULAR   delusion    CONCERNING  LEGAL    TENDERS. 

Mr.  Eckels.  That  is  just  it;  the  people  have  learned  how.  It  seems 
an  absurd  thing,  but  for  a  long  period  of  time  the  public  looked  upon 
the  legal-tender  notes  as  somehow  an  asset  of  the  Government  instead 
of  a  liability,  and  upon  the  man  who  held  legal  tenders  as  in  the  pos- 
session of  something  which  of  itself  had  value.  In  the  last  four  or  five 
years  everyone  has  come  to  know  that  instead  of  being  assets  they  are 
liabilities,  and  that  the  legal  tender  is  simply  a  promise  to  pay,  which  is 
made  of  value  only  when  it  is  converted  into  gold  by  the  i>romissor. 

Mr.  Spalding.  Let  me  ask  if  it  is  a  fact  that  the  Bank  of  England 
getting  more  gold  into  the  bank,  looked  as  though  it  was  endangered 
and  that  the  bank  was  in  a  worse  condition  than  it  was  before  ? 

Mr.  Eckels.  Oh,  no;  because,  outside  of  the  uncovered  paper  there 
is  an  equivalent  of  gold  back  of  every  piece  of  paper  issued  by  the  Bank 
of  England. 

Mr.  Spalding.  Is  not  that  because  for  every  dollar  of  greenbacks 
taken  out  of  the  Treasury  a  dollar  of  gold  goes  in  for  them?  Is  not 
that  the  way  the  increase  is  made,  exactly  the  same  as  with  the  Bank 
of  England? 

Mr.  Eckels.  No;  there  is  not  a  dollar  of  gold  coming  in  every  time 
a  dollar  of  greenbacks  is  issued,  because  greenbacks  are  issued  to  pay 
current  expenses. 

Mr.FowLER.  And withtheexpensesrunningbehindabout|12,000,000 
a  month? 

Mr.  Spalding.  Is  it  not  true  that  $195,000,000  was  paid  into  the  Treas- 
ury during  this  Administration  in  exchanging  greenbacks  for  gold? 

Mr.  Eckels.  I  do  not  know  exactly  the  amount,  but  there  was  a  great 
deal. 

Mr.  Spalding.  It  was  about  that.  Is  it  not  true  they  recouped  in  a 
large  measure  the  gold  in  the  Treasury  by  issuing  greenbacks,  because 
they  are  better  to  carry  than  gold,  and  for  various  other  reasons  ?  There 
were  $195,000,000  paid  in,  notwithstanding  the  action  of  this  endless 
chain  so  much  talked  about? 

Mr.  Eckels.  Yes ;  there  was  a  large  amount  of  gold  paid  out.  A  great 
deal  more  than  $195,000,000  was  paid  out. 


372  FINANCIAL    AND    BANKING    SITUATION. 

^Ir.  Spalding.  That  is  lar.iiely  because  we  are  running  short,  I  think. 
The  statement  of  Mr.  Hill  is  that  the  increase  of  gold  in  the  Treasury 
endangers  the  condition  of  the  Treasury, 

Mr.  Eckels.  It  does  not  strengthen  it  unless  you  have  both  gold  and 
greenbacks  in  the  Treasury. 

Ml'.  Spalding.  It  could  not  strengthen  the  condition,  because  there 
is  less  than  $346,()()(),()00  of  greenbacks  in  existence. 

Mr.  Eckels.  These  notes  and  the  Sherman  notes  would  be  about 
8450,000,000. 

IMPRISONING  THE   GREENBACKS. 

Mr.  Cox.  Now,  I  will  go  back  to  my  line  of  thought.  The  question 
proi)ounded  by  I\Ir.  Johnson,  in  the  consideration  of  this  bill,  is  a  very 
proper  one.  Of  course,  as  you  decrease  the  amount  of  greenl.iacks  out- 
standing and  put  them  into  ])rison,  as  the  term  has  come  to  be  used,  so 
to  that  extent  you  decrease  the  danger  of  a  raid  upon  the  Treasury. 
That  is  jdain.  Now,  under  this  bill  you  redeem  the  ones  and  twos  and 
fives  that  are  outstanding.  You  redeem  them  with  silver  when  they 
come  in.  Do  you  remember  the  amount  of  fives,  twos,  and  ones!  I  had 
that  statement  here  at  one  time. 

Mr.  Eckels.  About  $75,000,000  of  ones  and  twos. 

Mr.  Fowler.  They  amount  to  about  8250,000,000. 

Mr.  Cox.  Just  assume  that  sum  for  the  ])oiut  of  my  question.  Now, 
say  they  are  destroyed;  you  require  30  per  cent  of  the  circulation  of 
the  banks  to  be  taken  out  on  the  basis  of  greenbacks.  That  would 
l)nt  in,  I  should  say,  if  it  were  imperative,  something  like  $150,000,000, 
would  it  not'^  lam  running  on  these  figures  without  having  them 
fresh  in  my  mind. 

Mr.  Eckels.  The  present  national-bank  capital  is  about  8050,000,000. 
If  all  the  present  national  banks  went  into  the  system 

Mr,  Cox.  Making  it  imperative. 

Mr.  Eckels.  If  they  were  compelled  to  take  out  75  yiev  cent  of  the 
amount  of  that  ca])ital  in  circulation,  75  per  <'ent  of  8650,000,000  would 
be  about  8485,000,000,  and  then  30  per  cent  of  that  sum,  if  they  all 
went  into  it,  would  impound  about  $145,000,000. 

i\Ir.  Cox.  Now  Ave  add  to  the  other. 

Mr.  Eckels.  To  which  other '^ 

Mr.  Cox.  To  the  other  where  you  have  included  the  fives,  twos,  and 
ones;  and  it  amounts  to  about  $250,000,000. 

Mr.  Eckels.  But  some  of  the  fives  are  legal  tenders. 

Mr.  Cox.  Suppose  we  let  the  fives  alone  and  cancel  the  ones  and 
twos  with  silver.  That  is  about  $75,000,000,  and  then  you  get  about 
$150,000  on  the  30  per  cent  that  is  to  be  dei)Osited  for  circulation  of 
tlic  legal-tender  notes.  Then  you  have  got  8 180,000,000  and  875,000,000, 
which  makes  $250,000,000.  1  am  running  on  rough  figures  now.  When 
you  come  to  the  result  you  will  find  they  are  all  impounded. 

SILVER   IN   place   OF   SMALL   NOTES. 

Mr.  Ecicels.  I  do  not  understand  by  what  method  you  say  you  can- 
cel the  ones  and  twos  with  silver.  You  do  not  intend  to  redeem  in 
silver '? 

Mr.  Cox.  This  act  provides  when  they  come  into  the  Treasury  in  any 
shape  whatever  they  are  canceled  and  silver  is  issued  in  tlieir  place 
and  it  gO(;s  to  the  extent  of  the  fives.  The  fives  were  i)ut  in  there. 
The  calculation  is.  to  supply  the  ones  and  twos  and  put  in  their  place 
the  silver. 


FINANCIAL    AND    BANKING    SITUATION.  373 

Mr.  Hill.  There  are  $5,000,000  greenbacks,  $19,000,000  Treasury 
notes,  and  $43,000,000  of  silver  certificates — ones  and  twos — naaking 
$09,000,000  all  told,  of  silver  certilicates,  greenbacks,  and  Treasury 
notes. 

Mr.  Cox.  It  is  not  imperative  under  tliis  act  that  he  shall  issue  actual 
silver  in  the  redemption  and  cancellation  of  those  notes.  It  is  owing 
to  what  the  man  wants;  but  it  su])p]ies  to  these  raiders  upon  the  Treas- 
ury the  ones  and  twos  with  silver  out  of  the  bullion. 

Mr.  Eckels.  I  do  not  understand  the  Secretary  of  the  Treasury  is 
to  redeem  in  silver  anything  except  silver  certificates. 

Mr.  Cox.  Look  at  section  11  : 

That  whenever  there  shall  he  receivefl  into  tho  Treasury  of  the  United  States  any 
legal-tender  notes  or  Treasury  notes  issued  under  the  act  of  ,7  uly  14, 1890,  of  less  denom- 
ination than  $10,  the  same  shall  ho  canceled  and  silver  dollars  or  silver  certificates 
of  like  denominations  shall  bo  issued  in  amounts  equal  to  such  notes  so  canceled; 
and  in  order  to  put  the  provisions  of  this  act  into  effect,  tlie  Secretary  of  the  Treas- 
ury shall  proceed  to  coin  the  silver  bullion  in  tlie  Treasury  as  rapidly  as  practicable, 
and  ho  is  hereby  directed  to  issue  silver  certificates  upon  tho  silver  bullion  now  in  the 
Treasury  for  the  purposes  hereinabove  stated. 

Mr.  Johnson.  I  suppose  if  any  individual  presented  Treasury  notes 
and  demanded  gold  he  would  be  entitled  to  receive  it,  but  if  he  should 
present  it  in  paying  for  customs  it  might  be  retired  and  silver  issued 
in  its  place. 

UTILIZING   THE   BULLION   IN   THE   TRl^ASURY. 

Mr.  Cox.  That  is  exactly  right.  Of  course  the  idea  in  that  bill  was 
to  try  and  utilize  the  bullion  which  is  in  the  Treasury. 

Mr.  Johnson.  It  puts  the  silver  represented  by  the  certificate  in  its 
place? 

Mr.  Cox.  Section  12  gives  discretionary  power. 

Mr.  Nbwlands.  You  get  rid  of  the  endless  chain  there. 

Mr.  Cox.  You  have  made  a  i)oint  that  is  not  in  this  bill.  I  do  not 
want  to  go  into  that  now.  Section  12  is  another  thing  which  provides, 
for  the  purpose  of  getting  control  of  these  Treasury  notes,  that  so  much 
of  tlie  customs  dues  shall  be  paid  in  these  notes.  I  am  right  in  the 
construction  of  that? 

Mr.  Eckels.  Yes;  it  gives  discretionary  power.  It  all  tends  to 
attempting  to  do  the  same  thing.  The  balance  of  the  sections  relate 
to  State  banks. 

Mr.  Cox.  No;  the  thirteenth  section  was  put  into  this  bill  before  any 
bonds  were  issued  by  the  present  Admiidstration  and  was  an  attempt 
to  reduce  the  rate  of  interest.     That  is  what  that  was  jiut  in  there  for. 

STATE   BANKS. 

Section  14  refers  to  State  banks.  I  want  to  ask  you  one  question 
about  that.  You  take  all  the  provisions  of  that  act  that  are  made 
applicable  to  State  banks,  and  the  restrictions  which  are  thrown  around 
State  banks  in  this  act,  and  I  would  like  to  have  your  judgment  as  to 
whether  it  would  be  possible  for  a  State  bank  to  issue  notes  which 
would  not  be  perfectly  good. 

Mr.  Eckels.  That  would  depend  entirely  upon  how  the  authorities 
live  up  to  the  provision  of  the  law.  If  around  State-bank  issues  are 
thrown  all  theprovisions  which  arc  thrown  around  national-bank  issues 
I  am  not  able  to  see  what  advaiitage  there  is  in  not  having  State  banks 
brought  into  the  national  system. 


374  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  FowLEK.  So  as  to  secure  a  uniform  currency  ' 

Mr.  Eckels.  Aiul  to  do  away  with  the  incouveuience  and  confusion 
of  having  different-appearing  circuhiting  notes. 

Mr.  Johnson.  There  is  not  much  more  reason  to  have  more  safeguards 
thrown  around  State  banks  than  around  national  banks,  when  they  are 
really  all  national  banks! 

j\Ir.  Eckels.  1  think  so.  If  the  (lovornment  of  the  United  States 
has  power  to  make  provisions  as  to  the  things  tliat  shall  be  done  by 
the  national  banks  before  they  can  issue  notes,  I  do  not  know  why  it  has 
not  tlie  right  to  go  a  step  further  and  say  it  will,  as  a  matter  of  legal 
right,  regulate  the  whole  thing.  There  is,  in  addition,  the  doing  away 
with  anj^  element  of  doubt  that  otherwise  might  exist  as  to  the  con- 
struction the  various  oflicers  of  the  various  States  would  jiiit  upon  the 
provisions  regulating  them,  as  provided  for  by  this  act.  1  think  the 
notes  would  be  perfectly  safe,  but  1  do  not  see  any  advantage  that 
would  accrue  to  the  State  banks,  and  I  do  believe  that  some  disadvan- 
tages would  result. 

Mr.  Johnson.  Having  all  national  banks  would  tend  to  simplicity  ? 

Mr.  Eckels.  Yes. 

Mr.  Johnson.  And  avoid  any  question  affecting  jurisdiction  between 
national  and  State  governments? 

uniformity  of  reports  an  advantage. 

Mr.  Eckels.  Yes;  and  that  is  a  great  deal  and  worth  considering. 
1  have  within  the  last  two  weeks  sent  a  letter  to  all  of  the  governors  of 
the  States  asking  if  the  State  reports  can  not  be  made  uniform  with 
national-bank  reports,  the  time  for  making  calls,  etc.  Tlie  gain  in 
uniformity  would  be  of  great  advantage. 

Mr.  Cox.  That  ends  the  bill.  Let  me  call  attention  to  the  first  thing 
in  regard  to  State  banks. 

First.  That  snch  bank  has  had  at  no  time  outstanding  any  circuLating  notes  in 
excess  of  75  per  centum  of  its  paid-up  and  unimpaired  capitaL 

Of  course  the  right  to  issue  circulation  is  the  same  as  for  national 
banks,  so  there  is  uniformity  in  that  direction.  It  can  not  issue  in  excess 
of  To  per  centum  and  there  is  uniformity  of  circulation. 

Second.  That  the  stockholders  are  individually  liable  for  the  redemption  of  the 
circulating  notes  in  an  amount  equal  to  the  par  value  of  the  stock  owned  by  them, 
but  this  shall  not  Ik'- required  in  the  case  of  ])er8ons  holding  stock  as  executors,  admin- 
istrators, guardians,  or  trustees  if  the  assets  an<l  funds  in  their  hands  are  liable  in 
like  manner  to  the  same  extent  as  the  testator,  intestate,  ward,  or  person  interested 
in  such  funds  should  be  if  living  and  competent  to  act  and  hold  the  stock  in  his  own 
name. 

Third.  That  the  circulating  notes  constitute  by  law  a  first  lien  ii))on  all  the  assets 
of  the  bank. 

There  is  the  liability  of  the  stockholder. 

Fourth.  That  the  bank  lias  at  all  times  kept  on  deposit  with  theolTicer  oi"  the  State 
authorized  by  law  to  receive  and  hold  tlie  same  a  guaranty  fund  in  currency  certili- 
cates  issued  under  section  .5193  of  the  Revised  Statutes  of  the  United  States,  or  United 
States  legal -tc^nder  notes,  including  Treasury  notes  of  1890,  equal  to  30  per  centum 
of  its  outstanding  circulating  notes. 

This  is  substantially  as  it  is  in  the  national  banks. 

Fifth.  Tliat  it  has  promptly  redeemed  its  notes  at  par  on  dem.and  at  its  ])rin(ipal 
office,  or  at  one  or  more  of  its  branch  offices  if  it  has  branches. 

Whenever  the  Secretary  of  Treasury  and  ('om])tiollcr  of  (hirrency  shall  be  satis- 
fied that  any  b'nking  corporation  duly  orgaui/cd  under  the  laws  of  any  State,  and 
whi<'li  transacts  no  other  than  a  ))aiikiug  business  as  jirovided  in  this  sc^ction,  has 
been  incorporated  under  the  laws  of  the  State  in  which  it  is  located  and  as  such 
laws  require 


FINANCIAL   AND    BANKING    SITUATION.  375 


ORKATIN(i    A    HOME    MARKET. 

The  point  you  make — and  there  is  some  point  in  it — if  you  put  these 
restrictions  upon  the  State  banks,  there  is  no  necessity  then  for  them 
to  go  in  except  into  national  banks.  Let  me  call  attention  to  the  dif- 
ferent methods.  The  assets  of  the  bank  depend  upon  the  locality  of 
the  bank.  It  depends  u])on  the  business  which  it  does;  it  does  not 
depend  upon  any  iron  rule. 

Take,  for  instance,  a  hundred-thousand-dollar  State  bank  in  my 
State,  Tennessee.  They  have  complied  with  the  conditions,  and  no 
tax  attaches  to  the  circulation  of  the  note.  Notice,  then,  that  we  have 
got  a  certain  amount  of  money  in  our  vaults  that  cau  not  be  used. 
We  invest  that  money  in  State  bonds  of  the  State  of  Tennessee  as  an 
asset  of  the  bank.  What  is  the  effect  of  that?  By  investing  there, 
we  create  what* you  might  call  a  home  market,  and  this  interest  on  the 
bonds  is  paid  out  at  home.  In  addition  to  that  you  make  every  bank 
in  my  State  that  has  any  investments  of  that  kind  deeply  interested 
in  maintaining  the  credit  of  its  State.  There  is  the  advantage  you 
get.  Take  a  bank  in  New  York  or  one  of  the  great  cities.  They 
never  think  of  investing  their  assets  in  that  way,  but  we  do.  One 
great  advantage,  I  think,  this  system  gives,  although  as  an  old  Demo- 
crat I  do  not  think  we  had  any  right  to  put  the  10  per  cent 

Mr.  Eckels.  I  think  the  most  undemocratic  thing  you  have  stated  is 
your  suggestion  relative  to  the  building  up  of  a  home  market. 

Mr.  Cox.  1  got  on  the  liepublican  doctrine  on  that  line. 

Mr.  Johnson.  You  have  not  got  on  the  Eepublican  doctrine  on  the 
State-bank  idea. 

Mr.  Cox.  Well,  1  am  willing'  to  budge  over  one  time.  One  more 
point  about  this.  I  do  not  believe  you  can  sit  down  in  this  room  or  in 
Congress  and  formulate  any  banking  bill  that  will  be  successlul  unless 
you  leave  a  certain  amount  of  control  to  localities  over  their  own  bank- 
ing system.  I  do  not  believe  you  can  do  it  to  save  your  life.  If  we  are 
permitted  down  there  to  organize  State  banks  with  circulation  under 
these  rigid  restrictions — they  were  put  in  here  for  this  purpose — you 
give  us  an  oiiportunity  to  issue  a  currency  just  as  soon  as  it  is  needed, 
and  you  give  us  an  opportunity  to  do  it  and  to  use  our  own  securities. 

LOANING  ON  REAL  ESTATE. 

Mr.  Eckels.  The  difficulty  in  State  banks  issuing  notes  and  having 
the  bank  notes  accepted  would  lie  in  the  fact  that  they  would  wish  to 
have  the  same  right  which  they  now  have  of  loaning  on  real  estate. 

Mr.  Cox.  That  is  exactly  right. 

Mr.  Eckels.  And  unless  it  should  be  provided  that  State  banks 
should  not  loan  on  real  estate,  there  would  be  danger  from  such  State 
bank  issues.  State  banks  in  many  sections  of  the  South  would  not 
accept  a  system  which  does  not  permit  them  to  loan  on  real  estate. 

Mr.  Cox.  Pardon  me  just  there.  'State  banks  do  so  all  over  the 
country,  all  over  the  United  States,  and  in  my  town  there  is  a  State 
bank  on  one  corner  and  a  national  bank  on  another.  It  is  an  everyday 
transaction  that  the  State  banks  loan  on  real  estate. 

Mr.  Eckels.  Yes;  but  that  is  the  difficulty  in  issuing  notes  against 
their  assets,  because  they  are  not  bankable  assets. 


376  FINANCIAL    AND    BANKING    SITUATION. 


CONVERTIBLE   ASSETS. 

Mr.  Cox.  The  trouble  ^Yllicll  lies  in  your  miutl  is  that  real  estate  is 
not  an  asset  of  that  character  which  can  be  converted  readily  into  cash 
fcr  the  purpose  of  the  redemption  of  the  notes;  and  in  this  bill,  without 
regard  to  the  deiu)niination  or  the  general  assets  of  the  bank,  the  funds 
are  ample  and  sutlicient.  One  more  word  there  and  we  will  pass  from 
that.  That  is  what  is  working  an  injustice  with  us.  that  tlie  very  assets 
we  have  got  we  can  not  use,  but  your  national  banks  have  to  lesort  to 
this,  and  do  so  every  day,  and  it  is  perfectly  legitimate,  and  when  a  nuiu 
v.ants  to  borrow  money  from  a  national  bank,  juul  he  has  got  a  farm, 
he  gives  his  personal  security  upon  that  note,  and  that  is  the  only  way 
he  can  get  it. 

Mr.  ]S'ewlands.  And  his  neighboring  farmer  indorses  it,  while  the 
real  security  is  the  farm,  after  all? 

Mr.  Cox.  And  the  real  security  is  the  farm  that  the  maker  of  the 
note  holds.  There  are  two  points  made  against  assets,  and  one  is  that 
you  can  not  readily  convert  them  into  cash.  Is^ow,  there  is  nothing  in 
my  country  that  you  can  convert  into  cash  as  readily  as  real  estate, 
unless  it  is  a  bond  or  something  which  sells  on  the  stock  markets  of 
the  country,  and  we  have  none  of  those. 

Mr.  Eckels.  I  do  not  think  that  any  bank  notes,  under  any  well- 
regulated  system,  are  iJermitted  to  be  issued  against  assets  which  are 
known  to  be  other  than  what  are  called  quick  assets,  viz,  good  com- 
jnercial  paper.  It  is  not  good  l)ankingto  issue  bank  notes  against  real 
estate  assets,  for  the  reason  that  real  estate  assets  are  not  convertible 
upon  demand. 

M  v.  Cox.  xVs  to  that  sole  objection  that  the  assets  of  the  bank  are  in  real 
estiite,  I  can  give  you  an  illustration  of  the  i)racticai  working  of  it.  In 
nine  years'  experience  in  the  bank  at  home,  we  have  never  lost  a  cent — 
not  a  cent — but  one  step  further  which  impresses  me,  I  do  not  think  it 
is  i)roper  or  right  by  an  act  of  Congress  to  discvimniate  against  any 
property  of  any  individual. 

Mr.  Spalding.  You  mean  real  estate! 

Mr.  Cox.  I  think  real  estate  has  the  same  rights  of  the  territory,  to 
so  express  it,  as  bonds  or  stocks. 

Mr.  Johnson.  I  want  to  ask  you  a  (juestion.  Suppose  this  bill  should 
become  a  law,  and  State  banks  should  be  given  the  right  to  issue  cir- 
culating notes  under  it,  do  you  understand  the  Government  would 
retain  the  right  of  visitation  upon  those  State  banks;  the  right  to 
require  reports  and  inspect  them  by  sworn  ofticers? 

Mr.  Cox.  Put  police  power  in  there  if  you  want  to,  but  it  would  not 
amount  to  anything. 

Mr.  JonNSON.  It  would  not  amount  to  anything  unless  the  National 
Government  had  the  right  to  enforce  that  power!? 

Mr.  Cox.  Oh,  the  very  moment  there  is  a  violation  of  the  law  in  any 
shape,  1  do  not  care  how  you  ])ut  it,  in  the  redeini)tion  of  notes,  deti- 
ciency  of  assets,  or  anything  of  thflt  kind,  the  Government  could  put  its 
hand  upon  the  bank  by  forcing 

i\Ir.  Johnson.  That  would  be  shutting  the  door  after  the  horse  is  out. 

Mr.  Hill.  1  move  that  the  committee  take  a  recess  until   1  o'clock. 

The  motion  was  agreed  to. 


FINANCIAL    AND    BANKI^^G   '^TUATION.  377 


AFTER    RECESS. 

The  Chairman.  Mr.  Hill  has  the  iioor. 

Mr.  Hill.  How  much  time  have  I  at  my  disj^osal? 

The  Chairman.  That  is  for  yon  to  say. 

Mr.  Hill.  I  will  limit  myself  to  any  time  you  may  desire. 

1  would  ask  the  consideration  of  the  bill  H.  K.  981*3. 

Mr.  Chairman  and  gentlemen,  I  think  1  can  shorten  this  hearing  by 
making  a  very  brief  statement.  The  pur})ose  and  object  of  this  bill  is 
to  improve  and  liberalize  the  national-bank  law  as  we  now  have  it — the 
system  as  we  now  have  it.  I  start  on  the  theory  that  we  have  banks 
enough,  and  that  the  necessity  for  any  more  banks  will  develop  them, 
the  same  as  the  necessity  for  grocery  stores  or  dry  goods  stores  will 
develop  those  stores,  without  any  legislation.  The  purpose  and  object 
of  this  bill  is  to  perfect  the  existing  system,  so  that  the  State  aiid  private 
banks  of  the  country  will  come  under  the  national  system.  Its  ol)jeet 
is  to  so  liberalize  the  present  system  as  to  bring  existing  banks  under 
national  supervision  and  control. 

NO    3I0RE   BANKS   NEEDED. 

I  am  prepared  to  demonstrate  that  we  have  banks  enough  at  the 
present  time,  but  I  do  not  wish  to  go  into  that  subject,  as  1  do  not  want 
to  take  up  the  time  of  the  committee.  I  will  say,  however,  that  to-day 
the  United  States  has  banking  funds  to  the  extent  of  $93.00  j^er  capita, 
as  against  $120  per  capita  in  England,  and  these  two  nations  are  out  of 
sight  above  every  other  nation  in  the  world.  The  nation  next  to  these 
two  is  Denmark,  with  ^58  per  capita,  and  the  other  nations  run  down 
to  Germany,  with  $35;  France,  with  $25  per  capita,  and  Russia  with 
$6  per  capita.  So  I  start  out  with  the  proposition  that  the  thing  for 
us  to  do  at  the  present  time  is  not  to  have  a  radical  revolution  in  bank- 
ing legislation  or  in  the  financial  legislation  of  this  country,  but  to 
improve  what  we  have  got  and  try  to  bring  all  the  banks  under  a 
uniform  system,  and  to  so  liberalize  the  law  as  to  induce  them,  ratber 
than  to  compel  them,  to  come  in.  With  that  preliminary  statement,  I 
will  go  ahead. 

I  want  to  say  in  addition,  however,  that  my  theory  in  regard  to  this 
is  sustained  by  two  facts  which  have  been  made  known  recently.  One 
of  these  is  in  the  State  of  Massachusetts.  The  treasurers  of  savings 
banks  have  met  there  and  announced  as  their  deliberate  opinion  that 
there  are  too  many  banks  in  that  State  and  that  the  number  should  be 
decreased  and  the  capital  reduced.  The  other  ftict  I  wish  to  speak 
about  is  that  on  the  following  day  from  Kansas  came  the  official  decla- 
ration of  the  State  bank  examiner  that  there  are  too  many  banks  in 
Kansas  and  that  they  should  be  reduced  50  per  cent  in  number  and 
largely  in  capital. 

So  I  think,  gentlemei],  I  am  sustained  by  these  two  official  declara- 
tions that  the  banking  facilities  of  this  country  are  sufficiently  great 
already,  and  that  the  thing  for  us  to  do  is  to  try  and  improve  the  sys- 
tem rather  than  to  enlarge  it  or  radically  revolutionize  it.  To  do  that  I 
have  introduced  H.  E.  9823,  and  I  call  the  attention  of  the  committee 
and  the  attention  of  the  Comi^troller  to  its  provisions. 

The  first  part  of  the  bill  is  strictly  in  accordance  with  the  recom- 
mendation, not  only  of  the  present  Comptroller  of  the  Currency,  but  of 
every  Comptroller  from  John  J.  Knox  down  to  the  present  time. 


378  FINANCIAL   AND    BANKING    SITUATION. 


NOTES    ISSUED    TO   PAR   VALUE    OF   BONDS. 

The  first  section  is  as  follows : 

Be  it  enacted  by  the  Seriate  and  House  of  Jtepresentalives  of  the  United  States  of  Ameiica 
in  CoiKjress  assembled,  That  ti])oii  deposit  by  national  banking  associations  of  United 
States  bonds,  bearing  interest  as  provided  by  law  under  the  provisions  of  sections 
fifty-one  haiidred  and  tifty-nino  and  fifty-one  hundred  and  sixty  of  the  Revised 
Statutes,  such  associations  shall  bo  entitled  to  receive  from  the  Comptroller  of 
the  Currency  circulating  notes  of  ditferent  denominations  in  blank,  registered 
and  countersigned  as  pros  ided  by  existing  law,  e(iual  in  face  value  to  the  full 
par  value  of  the  lionds  so  deposited;  and  national  Itanking  associations  now 
having  bonds  on  deposit  for  the  security  of  circulating  notes  loss  in  face  value 
than  the  par  value  of  the  bonds,  or  which  nuiy  hereafter  have  such  bonds  on 
de))o8it,  shall  be  entitled,  upon  due  ap]>lication  to  the  Comptroller  of  the  Currency, 
to  receive  additional  circulating  notes  in  blank  tn  an  amount  which  will  increase  the 
aggregate  value  of  the  circulating  notes  held  )iy  such  associations  to  the  par  value 
of  the  bonds  deposited,  such  additional  notes  to  lie  held  and  treated  in  the  same  way 
as  circulating  notes  of  national  banking  associations  heretofore  issued,  and  subject 
to  all  the  i^rovisions  of  existing  law  affecting  such  notes:  Provided,  That  nothing 
herein  contained  shall  be  construed  to  modify  or  repeal  the  ])rovi8ious  of  sections 
fifty-one  hundred  and  sixty-seven  and  lifty-oue  hundred  and  seventy-one  of  the 
Keviscd  Statutes,  authorizing  the  Comptroller  of  the  Currency  to  require  additional 
deposits  of  bonds  or  of  lawful  money  in  cast;  the  market  value  of  the  bonds  held  to 
secure  the  circulating  notes  shall  fall  below  the  par  value  of  the  circulating  notes 
outstanding  for  which  such  bonds  may  be  deposited  as  security. 

That  permits  the  increase  of  circulating  notes  to  par,  which  is  your 
recommendation,  I  believe? 

]\Ir.  Eckels.  Yes;  I  have  made  that  recommendation  each  year  I 
have  been  Comi)troller. 

Mr.  Hill  (continuing).  And  which  I  thought  would  meet  the  approval 
of  the  banking  institutions  of  the  country. 

TAX   ON   CIRCULATION. 

The  second  section  ])rovides  for  the  reduction  of  the  tax  to  one-fourth 
of  1  per  cent.  1  put  this  in  the  bill,  in  accordance  with  your  recom- 
luendation.  I  wouhl  like  to  ask  you  why,  in  your  judgment,  any  tax 
should  be  put  on  circulation  ? 

Mr.  Eckels.  The  only  justification  for  it  would  be  to  make  banks 
pay  the  ne(;essary  expenditure  of  the  Government  in  taking  care  of  the 
supervision  of  the  banks. 

Mr.  Hill.  I  would  ask  you  if  that  is  not  paid  by  tlie  national  banks 
to-day,  outside  of  any  kind  of  a  tax— the  entire  cost  of  making  the  bills 
and  keei)ing  the  plates,  and  the  examination  of  banks,  and  everything 
of  that  kind,  as  an  additional  charge,  outside  of  taxation — isn't  it 
assessed  upon  the  banks? 

Mr.  lOcKELS,  Tlie  tax  is  for  that  expense. 

Mr.  Hill.  The  redemption  charges  are  paid  by  the  banks? 

Mr.  Eckels.  Yes. 

Mr.  Hill.  The  cost  of  the  bills  is  paid  by  the  banks  ? 

Mr.  Eckels.  Yes.  The  tax,  though,  is  supposed  to  meet  certain 
expenses  of  the  Bureau. 

Sir.  IIiLL,  Then  1  understand  that  the  salary  of  the  Comptroller  and 
the  expenses  of  the  Bureau  are  not  included? 

Mr.  Eckels.  No. 

Mr.  Hill.  They  are  charged  to  the  banks,  and  this  tax  of  one-fourth 
of  1  percent  is  nominally  supi)osed  to  cover  every  outside  expenditure 
not  now  assessed. 


FINANCIAL    AND    BANKING    SITUATION.  379 

Mr.  Eckels.  Yes. 

Mr.  Hill.  And  that  this  would  be  abundantly  large  and  even  more 
tlian  sufficient. 

Mr.  Eckels.  Yes;  more  than  sufficient. 

Mr.  Hill.  Let  me  ask  you  whether,  in  your  judgment,  it  would  not 
be  full  as  well  to  include  those  expenses  m  the  assessment,  as  now  laid, 
and  not  have  any  tax  at  all  ? 

Mr.  Eckels.  It  would  be  virtually  the  same  thing. 

Mr.  Hill.  If  it  was  an  assessment,  as  the  redemption  charges  are 
now  made,  and  as  the  examination  charges  are  now  made,  the  banks 
then  would  absolutely  pay  the  expenses  and  nothing  more? 

Mr.  Eckels.  Yes. 

Mr.  Hill.  Do  you  know  any  reason  why  money  should  be  taxed  ? 

Mr.  Eckels.  No;  I  do  not  know  of  any  reason  why  money  should  be 
taxed.  I  do  not  know  of  any  reason  why  a  country  should  undertake 
to  get  out  circulation  and  put  barriers  in  the  way  of  so  doing,  in  the 
shape  of  unnecessary  taxes. 

Mr.  Hill.  Section  2  is  as  follows: 

Skc.  2.  That  in  lieu  of  all  existiiitj  taxes  every  national  banking  association  shall 
pay  to  the  Treasurer  of  the  United  States  in  the  month  of  January  of  each  year  a 
duty  of  one-quarter  of  one  per  centum  upon  the  average  amount  of  its  notes  in 
circulation  during  the  preceding  year. 

I  have  drawn  that  section  in  deference  to  your  judgment — contrary 
to  mine,  because  I  think  there  should  be  no  tax  on  money,  myself. 

RETIREMENT  OF  LEGAL  TENDERS. 

Section  3  is  as  follows : 

Sec.  3.  That  M'henever  and  so  often  as  circulating  notes  shall  be  issued  to  any 
snch  newly  organized  banking  association,  or  to  an  existing  association  increasing 
its  capitaf  or  circulating  notes,  it  shall  be  the  duty  of  the  Secretary  of  the  Treasury 
to  redeem  and  cancel  legal-tendor  United  States  notes  issued  under  acts  passed  prior 
to  July  first,  eighteen  hundred  and  ninety,  to  an  amount  equal  to  the  sum  of  national- 
bank  notes  so  issued  to  any  such  banking  association;  and  whenever  the  Treasury 
shall  not  have  in  its  possession  United  States  legal-tender  notes  issued  as  aforesaid, 
the  provisions  of  this  section  shall  then  a})ply  to  the  like  redemption  and  cancella- 
tion of  Treasury  notes  issued  imder  the  act  of  July  fourteenth,  eighteen  hundred 
and  ninety. 

That  provides  for  the  redemption  and  cancellation  of  the  legal-tender 
paper  money  of  the  United  States  exactly  as  fast  and  no  faster  than 
the  national  bank  circulation  is  issued  under  the  liberal  provision  of 
this  bill. 

Mr.  Eckels.  That  is  virtually 

Mr.  Hill.  A  reenactment  of  the  old  law,  except  that  it  provides  for 
100  per  cent  when  the  other  provides  for  80  per  cent. 

Mr.  Eckels.  Yes. 

Mr.  Hill.  To  keep  the  volume  exactly  alike. 

GOLD   BOND    ISSUES   AUTHORIZED. 

Section  4  is  as  follows : 

Sec. 4.  Thatto  enable  the  Treasurer  of  the  United  States  to  comply  vrith  the  require- 
ments of  this  act  and  to  redeem  and  cancel  the  United  States  legal-tender  notes  and 
Treasury  notes  named  therein,  he  is  hereby  authorized  to  issue  from  time  to  time,  on 
the  credit  of  the  United  States,  coupon  or  registered  bonds,  redeemable  at  the  pleas- 
ure of  the  United  States  after  live  years,  and  payable  twenty  years  from  date,  bear- 
ing interest  at  the  rate  of  three  jjer  centum  per  annum,  payable  semiannually,  to  such 


380  FINANCIAL    AND    BANKING    SITUATION. 

au  amount  as  may  be  necessary  for  tlic  purpose  herein  expressed,  and  the  proceeds 
of  the  same  to  he  used  for  no  otlier  purpose  whatsoever.  The  bonds  .so  authorized 
shnll  ho  payable  in  <,()hl.  aud  shnll  be  of  such  denouiiuations.  not  less  tluin  oneliuu- 
dred  dollars,  as  may  he  determined  ui)ou  by  tho  Secretary  of  the  Treasury,  aud  luay 
he  disposed  of  by  hiiu  at  any  tiuu'  at  not  less  than  their  par  value  for  either  class  of 
said  notes  or  for  gold  in  this  country  gr  elsewhere. 

That  provides  for  autliorizing  the  Treasurer  of  the  United  States, 
wlieiiever  it  hecomes  necessary  and  at  liis  discretion — for  this  purpose 
and  this  purpose  only,  the  i)roceeds  to  be  used  for  notliint;-  else — to 
issue  bonds  di.stinetly  and  specifically  ])ayable  in  ^old,  with  authority 
to  sell  theiiJ  here  or  else^vhere.     Have  you  any  objection  to  that? 

^Ir.  Eckels.  I  see  no  objection  to  the  bonds  being  paid  in  gold. 

iAlr.  Hill.  You  think  there  is  no  harm  in  such  a  disci  imination? 

Mr.  Eckels.  I  do  not.  I  think  there  ought  not  to  be  a  bond  issued 
by  tins  Government  except  distinctively  payable  in  gold. 

Mr.  Hill.  That  meets  your  approval? 

Mr.  Eckels.  In  that  respect  the  section  meets  my  approval. 

Mr.  Hill.  Is  there  any  other  respect  in  which  it  does  not  meet  your 
ai^proval? 

Mr.  Eckels.  I  have  stated  a  number  of  times  that  I  thought  the 
manly  and  creditable  thing  to  do  would  be  to  get  rid  of  these  legal 
tenders,  by  the  funding  of  them,  but  the  question  this  committee  has 
to  deal  with  is  whether  or  not  it  is  the  most  practical  way.  If  I  had 
the  doing  of  it  I  would  do  it  in  that  way. 

Mr.  Hill.  If  1  had  the  doing  of  it  and  it  Avas  dependent  on  me  and 
my  vote,  1  would  do  it  in  that  way,  but  I  recognize  the  fact  it  has  to 
meet  tlie  a])proval  of  the  peoi>le,  and  consecjuently  I  have  aimed  for 
maintaining  an  exact  eipiivalent  in  the  issuance  of  bank  notes  for  the 
retirement  of  the  greenbacks. 

Mr.  Eckels.  I  do  not  see  any  reason  why  the  United  States  ought 
not  to  pay  its  debts,  whether  it  has  its  debts  in  the  shape  of  a  bond, 
drawing  interest,  or  in  the  shape  of  promises  to  pay  not  drawing  inter- 
est. The  funding  of  these  legal  tenders  would  be  simply  the  payment 
of  a  just  de])t.  The  objection  that  this  method  of  disposing  of  them 
substitutes  an  interest-bearing  debt  for  a  noninterest  bearing  one  is  not 
a  very  substantial  one.  There  is  no  reason  why,  if  the  (xovernment  has 
the  property  of  the  citizens  and  uses  it  for  the  benefit  of  the  Govern- 
ment, the  Government  ought  not  to  pay  for  so  doing. 

Mr.  Bijosms.  Will  the  ( 'omptroller  have  the  goodness  to  explain  why 
the  (iovernment,  or  even  an  individual,  should  pay  a  debt  that  costs  no 
interest  when  the  creditor  does  not  want  it  i)aid? 

Mr.  Eckels.  An  individual  or  the  Government  ought  to  pay  a  debt 
that  is  a  source  of  danger  to  it,  whether  it  bears  interest  or  not,  and  it 
ought  to  have  it  known  definitely  when  these  debts  will  be  terminated. 

Mr.  liROSius.  Then  you  mean  to  qualify  your  former  statement  that 
the  Government  ouglst  to  ])ay  any  debt  that  is  a  source  of  danger? 
You  did  not  have  that  in  your  other  statement. 

Mr.  Eckels.  The  (irovernment  ought  to  pay  all  of  its  debts,  whether 
they  are  dangerous  or  otherwise. 

The  Chairman.  Isn't  it  a  fact  that  individuals  i)ay  debts  when  it  is 
for  their  interest  to  ])ay  them,  without  consulting  fhe  interest  of  the 
creditor"? 

Mr.  Hrosius.  ('an  anybody  ever  say  it  is  to  the  interest  of  the 
debtor  to  pay  a  debt  not  drawing  interest,  if  the  creditor  doesn't  want 
to  receive  it  ? 


FINANCIAL    AND    BANKING    SITUATION.  381 


AITTlIORIZINa   BANKS    WITH    SMALL    CAPITAL. 

Mr.  Hill.  I  call  your  sitteuliou  to  section  5. 
Section  5  is  as  follows : 

Sec.  5.  That  section  Hfty-ono  linndred  iuid  thirty-eight  of  the  Revised  Statutes  is 
hereby  so  amended  as  to  read  as  ioHows : 

"Sec.  5138.  No  association  shall  he  organized  with  a  less  cajiital  than  one  liun- 
dred  thousand  dollars,  exeejit  that  l)anks  with  a  capital  of  not  less  than  fifty  thou- 
sand dollars  may,  with  the  approval  of  the  Secretary  of  the  Treasury,  bo  organized 
in  any  place  the  population  of  which  does  not  exceed  six  thousand  inhabitants,  and 
except  that  banks  with  a  capital  of  not  less  than  twenty-five  tliousand  dollars  may, 
with  the  sanction  of  the  Secretary  of  the  Treasury,  be  organized  in  any  place  the 
population  of  which  does  not  exceed  three  thousand  inhabitants.  No  association 
shall  be  organized  in  a  city  the  population  of  which  exceeds  fifty  thousand  persons 
with  a  capital  of  less  than  two  hundred  thousand  dollars." 

This  committee  has  already  passed  a  bill,  and  it  has  passed  the  House, 
providiiig  for  the  organization  of  small  bankt.  with  a  possible  capital 
of  $20,00i)  in  towns  of  4,000  inhabitants.  This  section  varies  from  that, 
limiting  tiie  capital  to  $25,000  in  towns  to  3,000  inhabitants.  Person- 
ally I  would  prefer  not  to  go  below  $25,000. 

Mr.  Eckels.  All  the  members  of  the  committee  agree  in  all  these 
bills  that  banks  ought  to  be  allowed  with  a  smaller  capital  than  at 
present. 

RETIREMENT    OF    SILVER   CERTIFICATES. 

Mr.  Hill.  Section  6  is  as  follows : 

Sec.  6.  That  from  and  after  the  passage  of  this  act  the  Secretary  of  the  Treasury 
be,  and  he  hireby  is,  forbidden  to  issue  silver  certificates  in  excess  of  the  amount 
then  outstanding,  or  of  the  amount  as  it  may  hereafter  be  when  reduced  by  the  can- 
cellation of  such  certificates,  because  of  the  issuance  of  guaranteed  national-bank 
notes  in  place  thereof,  as  provided  in  section  eight  of  this  act. 

That  provides  for  the  retirement  of  silver  certificates  or  for  no  further 
issue  of  silver  certificates  after  they  are  retired  under  section  8  of  this 
act. 

Mr.  Cox.  How  do  you  retire  themf 

Mr.  Hill.  Section  8  retires  them. 

RETIREMENT    OF   NATIONAL-BANK   CIRCULATION. 

Section  7  is  as  follows: 

Sec.  7.  That  so  much  of  section  nine  of  an  act  entitled  "An  act  to  enable  national 
banking  associations  to  extend  their  corporate  existence,  and  for  other  purposes," 
approved  July  twelfth,  eighteen  hundred  and  eighty  two,  as  reads  as  follows,  "And 
no  national  bank  which  makes  any  deposit  of  lawful  money  in  order  to  withdraw 
its  circulating  notes  shall  be  entitled  to  receive  any  increase  of  its  circulation  for 
the  period  of  six  months  from  the  time  it  made  such  deposit  of  lawful  money  for  the 
purpose  aforesaid:  Provided,  That  not  more  than  three  millions  of  dollars  of  lawful 
money  shall  be  deposited  during  any  calendar  month  for  this  purpose :  And  provided, 
That  the  provisions  of  this  section  shall  not  apply  to  bonds  called  for  redemption 
by  the  Secretary  of  the  Treasury,  nor  to  the  withdrawal  of  circulating  notes  incon- 
seciuence  thereof,"  be,  and  the  same  is  hereby,  repealed;  and  the  Comptroller  of  the 
Currency  is  hereby  authorized  and  directed  to  have  prepared  and  keep  on  hand, 
ready  for  delivery  on  application,  blank  notes,  to  such  an  amount  as  he  may  deem 
advisable  for  each  national  banking  association  having  circulation. 

I  wanted  to  call  your  attention  to  that  section  in  comparison  with 
the  section  in  the  Carlisle  bill  which  we  have  just  had  under  considera- 
tion, which  repeals  other  sections  providing  for  the  retirement  of  the 
national  bank  circulation.  The  section  in  the  Carlisle  bill  and  the 
recommendations  made  by  the  Secretary  of  the  Treasury  revive  the 


382  FINANCIAL    AND    BANKING    SITUATION. 

previously  existing:  Uiav,  -which  limits  the  retirement  to  sums'of  not  less 
than  s'.>,0\»0,  Avhich,  it  seems  to  me,  and  I  think  you  would  ajiree  with 
me.  would  be  a  mistake,  certainly  for  small  banks.  So  I  have  only 
provided  for  the  rei>eal  of  a  portion  of  that  section  rather  than  the 
whole  of  it. 

Mr.  Cox.  Let  me  understand  that.  What  is  the  proposition  involved 
in  that? 

Mr.  Hill.  The  proposition  here  is  to  repeal  so  much  of  the  previous 
law  as  prevents  the  banks,  when  they  have  retired  their  circulation, 
taking  it  out  within  six  months;  also  so  much  ot  the  existing  law  as 
forbids  all  of  the  banks  of  the  country  together  retiring  in  excess  of 
$3,000,000  a  month. 

The  Carlisle  bill  repeals  the  whole  section,  so  that  it  leaves  the  pre- 
vious law  in  force,  which  would  prevent  any  bank  from  retiring  circu- 
lation in  sums  of  less  than  $9,000.  If  we  were  to  have  a  $20,000  bank 
tliis  would  make  an  excessive  sum  for  them  to  retire  at  once. 

Mr.  Eckels.  I  do  not  thiidc  the  Secretary  had  that  in  mind — I  mean 
the  small  banks. 

^Ir.  Cox.  The  iiroposition  to  allow  the  organization  of  small  banks 
was  not  before  the  Secretary. 

Mr.  Eckels.  No,  it  was  not.  But  I  suppose  it  would  follow  as  a 
matter  of  course,  when  the  bill  Avas  perfected  upon  the  lines  of  small 
banks,  that  that  provision  would  go. 

Mr.  Hill.  You  would  not  think  it  Mise  to  leave  that  standing? 

Mr.  Eckels.  Xo. 

Mr.  Hill.  With  that  thought  I  have  drawn  this  section  in  this  way, 
and  have  added  at  the  end  the  provision  which  will  require  the  Comp- 
troller of  the  Currency  to  keep  a  supply  of  bills  on  hand  at  all  times, 
which  it  seems  to  me  is  necessary. 

Mr.  Eckels.  That  was  also  provided  for  by  the  Secretary's  bill. 

BANK   NOTES    ISSUED    IN   LIEU    OF    LEGAL    TENDER. 

Mr.  Hill.  Sections  8,  9,  and  10  cover  an  optional  privilege  about, 
which  1  have  a  little  doubt  myself,  but  upon  which  I  would  be  glad  to 
have  your  opinion. 

Those  sections  are  as  follows: 

Sec.  8.  That  auy  iiatioual  bank  uow  organized,  or  that  may  be  hereafter  organized, 
may,  in  ])lace  of  a  dejxjsit  of  bonds  to  secure  circulation,  ])ay  to  the  Treasurer  of  the 
United  States  gold  coin  of  the  United  States  to  the  suni  of  not  Ies3  thau  twenty-five 
per  centum  nor  more  than  fifty  per  centum  of  the  capital  of  said  bank,  uud  thereupon 
the  Treasurer  of  the  United  States  shall  retire  and  destroy  a  corres])onding  amount 
of  the  legal-tender  notes  or  Treasury  notes  or  silver  certificates  of  the  I  hiited  States, 
selecting  such  issues  in  the  order  herein  named,  and  thereupon  the  Treasurer  shall 
cause  to  be;  issued  to  said  national  bank  an  e(|ual  amoimt  of  national-bank  notes  of 
distincti\e  color  currently  redeemable  by  said  bank  in  gold  at  its  own  ollice  and  at 
the  Treasury  of  the  United  States  and  guaranteed  as  to  their  iinal  payment  by  the 
United  States;  but  such  guaranteed  notes  shall  not  be  subject  to  taxation  and  shall 
not  constitute  a  lien  vipon  the  assets  of  said  bank. 

Sec.  9.  That  any  national  bank  taking  out  guaranteed  national-bank  notes,  as 
provided  in  section  eight,  shall  bo  entitled  to  receive  from  the  Treasurer,  and  is 
hereby  authorized  to  issue  national-b.'ink  notes  to  an  e(|ual  amount  without  <lei)()sit 
(if  bond  security  therefor,  but  the  amount  of  such  notes  shal.  .'it  no  time  exceed  the 
amount  of  guaranteed  notes  issued  l)y  th(^  Treasurer  to  sai<l  bank  and  remaining  out- 
standing, and  such  notes  shall  not  be  subject  to  taxation. 

Skc.  10.  That  national-bank  notes  not  guaranteed  as  to  their  final  i>ayment  by  the 
United  States  shall  lie  of  a  distinctive  color,  an<l  shall  declare  ui)on  their  face  that  they 
are  secured  by  a  first  lieu  ui)on  the  assets  of  the  bank  liy  which  they  are  issued,  and 
said  notes  shall  be  redeemahle  in  coin  at  the  bank  of  issue  and  at  such  other  redemp- 
tion agencies  and  under  such  regulations  as  may  be  approved  by  the  Comptroller  of 


FINANCIAL    AND    BANKING    SITUATION.  383 

the  Currency,  and  all  such  redemption  agencies  shall  be  plainly  indicated  upon  said 
notes;  but  such  notes  shall  not  be  redeemed  at  the  Treasury  of  the  United  States, 
and  the  United  States  shall  not  l)e  in  any  way  responsible  therefor. 

Sec.  11,  That  the  Treasurer  of  the  United  States  is  hereby  authorized  in  his  dis- 
cretion to  use  any  coin  or  bullion  in  the  Treasury  made  free  by  the  cancellation 
of  United  States  legal-tender  notes,  Treasury  notes,  or  silver  certificates  in  place  of 
guaranteed  notes,  issued  as  authorized  in  section  eight,  for  the  purchase  and  retire- 
ment of  any  of  the  bonds  or  other  obligations  of  the  United  States,  reserving,  how- 
ever, such  sum  as  in  his  judgment  he  may  deem  necessary  for  the  final  payment 
of  such  guaranteed  notes  as  may  become  duo  because  of  the  lapse  or  expiration  of 
charters  of  banks  to  which  such  notes  were  issued,  and  any  reduction  of  said  guar- 
antee fund  not  offset  during  any  fiscal  year  by  deposit  of  gold  for  guaranteed  notes 
by  other  national  banks  shall  be  included  in  the  estimates  of  the  Treasury  Depart- 
ment for  the  ensuing  year  and  covered  by  an  appropriation  for  the  guarantee  fund. 

The  proposition  is  this:  That  in  lieu  of  the  deposit  of  Goverumeut 
bonds  any  bank  may  pay  gold  to  tlie  Treasurer  of  the  United  States, 
whereupon  it  becomes  the  duty  of  the  Treasurer  of  the  United  States 
to  destroy  greenbacks,  Treasury  notes,  or  silver  certificates,  to  a  like 
amount,  in  the  order  named — greenbacks,  if  he  has  them  or  can  get 
them;  Treasury  notes  next;  and  silver  certificates  next;  and  in  lieu  of 
that,  the  money  being  paid  in,  to  issue  to  this  bank  a  guaranteed  note, 
guaranteed  as  to  its  final  payment  by  the  United  States  Government, 
but  the  current  redemption  of  which  the  bank  itself  shall  maintain, 
both  over  its  own  counter  and  as  national-bank  notes  are  now  redeemed 
by  the  Treasury  of  the  United  States.  The  amount  to  be  not  less  than 
25  per  cent  of  its  ca]3ital  nor  in  excess  of  50  per  cent  of  its  capital; 
but  such  notes  being  all  paid  for  by  the  banks,  shall  not  constitute  a 
lien  upon  the  assets  of  the  bank,  and  shall  be  absolutely  free  of  tax, 
the  theory  being  that  such  notes  will  be  probably  permanently  out- 
standing, as  a  substitute  for  the  legal-tender  paper  and  silver  certifi- 
cates that  are  withdrawn. 

Mr.  Eckels.  But  with  the  coin  dollar  back  of  each. 

Mr.  Hill.  A  gold  dollar  back  of  every  one  paid  into  tlie  Treasury  of 
the  United  States,  so  that  they  can  ultimately  take  care  of  it  when 
the  charter  of  the  bank  lapses  or  when  the  bank  fails,  and  the  current 
redemption  being  maintained  by  the  banks  over  their  own  counter. 
The  banks  make  no  money  out  of  that,  of  course.  They  assume  an 
obligation;  they  assume  a  burden  by  doing  it;  but  it  is  practically 
taking  up  so  much  of  the  debt  of  the  United  States  and  maintaining 
the  current  redemption  of  it  in  gold,  which  the  Government  does  now. 
Now,  why  should  they  do  it?     Why  should  they  do  that  in  order 

Mr.  Black.  What  makes  you  doubt  about  that  provision? 

Mr.  Hill.  I  do  not  doubt  about  that  part  of  it.  In  order  to  induce 
them  to  do  it  or  persuade  them  to  do  it,  I  then  add  in  section  9  that  in 
consideration  of  doing  that  a  bank  shall  be  allowed  to  issue  an  equal 
amount  of  their  own  notes,  redeemable — there  is  but  one  thing  in  which 
they  can  be  redeemed,  and  that  is  in  legal-tender  coin,  and  that  means 
gold  and  silver. 

REDEMPTION   OF   NOTES   IN   GOLD   AND   SILVER. 

• 

Mr.  Cox.  Do  you  mean  to  redeem  them  in  gold  and  silver? 
Mr.  Hill.  Both. 

Mr.  Cox.  At  the  option  of  the  bank  ? 
Mr.  Hill.  At  the  option  of  the  holder  of  the  note. 
Mr.  Cox.  Do  you  mean  the  option  of  the  holder  of  the  notes'? 
Mr.  Hill.  I  do  not  know  whether  I  mean  the  option  of  the  holder  of 
the  notes  or  the  banks.     It  seems  to  me  both.     Either  is  legal  tender. 


384  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  The  note  bolder  is  \hv  man  -who  ouglit  to  liave  tlie 
option. 

iAIr.  IIiLL.  Wliy?  Both  are  nnliinited  legal  tender,  and  if  lie  under- 
stands it  in  the  beginning 

Mr.  Eckels.  It  is  the  business  of  the  banks  to  hold  themselves 
responsible  to  redeem  the  notes  in  such  money  as  the  holders  of  them 
desire. 

Mr.  IIiLL.  How  can  there  be  any  objection  to  either,  when  the  Govern- 
ment of  the  United  States  makes  its  silver  and  its  gold  equally  legal 
tender? 

Mr.  Eckels.  But  when  the  statute  of  the  United  States  at  the  same 
time  says  that  it  is  the  established  i)olicy  of  the  Government  to  main- 
tain the  two  metals  at  a  parity,  it  seems  to  me  under  that  provision  it 
is  the  duty  of  the  Government. 

Mr.  Hill.  But  the  Government  is  not  redeeming  these  credit  notes. 

Mr.  Eckels.  But  you  cited  the  Government  as  an  illustration,  and 
]  say  the  Government  under  that  provision  must  hold  itself  responsible 
to  give  a  man  god  if  he  wants  it. 

Mr.  Cox.  Will  you  allow  me  a  question  right  there? 

Mr.  Eckels  (continuing).  Because,  if  the  Government  does  not  do 
that  it  does  not  maintain  the  parity  of  the  metals. 

Mr.  Cox.  Now,  you  have  your  banks  organized  under  that  principle. 
The  notes  of  the  bank  are  issued,  and  the  holder  of  the  notes  comes 
for  redemption.  If  you  confer  the  power  upon  the  holder  of  the  notes 
for  redemption,  naturally  he  will  take  the  highest  money.  If  you  confer 
the  power  upon  the  banks,  the  bank  will  naturally  pay  the  cheapest 
money.  Now,  will  not  that  result  in  this:  The  holders  of  the  notes  will 
be  in  control  of  the  highest  currency  for  redemption,  and  you  can  not 
prevent  it  to  save  your  life? 

Mr.  Eckels.  Undoubtedly  they  will  ask  for  the  best. 

Mr.  Cox.  Of  course  they  will,  and  they  will  demand  the  best. 

The  Chaiiiman.  We  agreed  not  to  ask  questions  until  we  got  through. 

Mr.  Hill.  Mr.  Comptroller,  this  is  not  a  note  of  the  Government;  it 
is  a  note  of  the  bank. 

Mr.  Eckels.  Yes. 

Mr.  Hill.  Precisely  the  same  as  if  an  individual  should  give  his 
note.  So  long  as  silver  is  legal  tender  is  it  not  right  and  ])roper  that 
this  note  vshould  be  redeemable  in  coin?  The  other  is  a  guaranteed 
note  of  the  Government  for  which  gold  has  been  ])aid  and  wliich  by 
the  term^  of  the  contract  is  specilically  redeemable  in  gold,  hut  this  is  a 
credit  note  of  the  banks,  issued  against  assets  to  a  limited  amount  and 
redeemable  in  what?  Is  it  not  absolutely  obligatory  on  tliese  banks,  if 
silver  is  called  for  to  give  silver,  and  if  gold  is  called  for  to  give  gold; 
or,  on  the  other  hand,  is  it  not  optional  lor  either  party  to  do  either,  so 
long  as  both  are  unlimited  legal  tender? 

Mr.  Eckels.  1  would  not,  Mr.  Hill,  in  a  new  bank  bill  permit  any 
bank  note  to  be  issued — whether  it  was  a  note  against  credit  or  a  note 
guaranteed  by  the  (Jovernment,  if  a  bank  did  not  hold  itself  responsi- 
ble to  redeem  the  same  in  gold.  I  would  not  have  any  "if  or  a\ids" 
about  it. 

Mr.  Hill.  I  would  not  have  any  legal  tender  silver  except  subsid- 
iary coin,  if  I  could  not  control  it  myself.  I  would  not  have  it  legal 
tender.  Personally  I  would  limit  it  strictly  to  a  gold  basis,  but  I  recog- 
nize the  fact  that  we  have  got  six  hundred  odd  million  dollars  of  legal 
tender  silver.    What  are  we  going  to  do  with  it  ?     My  proposition  is, 


FINANCIAL    AND    BANKING    SITUATION.  385 

as  covered  by  tliis  bill,  to  witlidraw  the  certificates,  get  it  into  circula- 
tion and  make  it  a  basis  of  redemption,  equally  with  gold,  so  fur  as  it 
is  full  legal  tender,  for  the  credit  currency  of  the  country.  What  can 
we  do  with  if? 

Mr.  Eckels.  I  do  not  know  of  anything  that  we  can  do  with  it 
except  to  go  to  whatever  expense  is  necessary  to  maintain  it  at  par 
with  gold. 

Mr.  Spalding.  Suppose  it  was  a  five-dollar  bill  presented  to  the 
bank.     If  it  was  a  subsidary  coin,  it  would  be  redeemed  in  gold? 

Mr.  ITiLL.  Yes.  I  wouldliketo  askthisquestion:  Supposing  the  Ohio 
National  Bank  in  the  city  of  Washington  should  issue  tliese  two  classes 
of  bills,  and  should  make  the  credit  bills  secure  by  their  assets,  and 
specify  on  their  face  that  tliey  are  redeemable  iu  coin  in  Washington 
and  at  the  Chemical  Katioiuil  Bank  in  New  York,  at  the  First  National 
Bank  in  Chicago,  and  the  First  National  Bank  at  San  Francisco,  would 
not  that  be  entirely  acceptable  to  the  jieople  of  the  United  States,  in 
your  judgment? 

Mr.  Eckels.  No;  I  do  not  thiidc  the  bank  would  run  the  risk  of 
having  two  kinds  of  notes  out  redeemable  in  different  kinds  of  money, 
because  every  time  that  a  man  got  one  of  these  reserve  notes,  or,  as  you 
call  them,  credit  notes,  he  would  go  to  the  bank  and  have  it  redeemed, 
and  he  woujd  insist  on  its  being  redeemed  in  the  best  money  possible. 
It  would  follow  tliat  the  public  would  be  kept  in  constant  doubt  all  the 
time  as  to  Avhether  the  notes  it  had  were  good.  I  do  not  thiuk  there 
ought  to  be  any  notes  iu  circulation  where  each  is  not  interchangeable 
with  the  other  without  loss  to  anyone. 

Mr.  Hill.  I  agree  with  you  there;  but  what  will  you  do  with  our 
silver? 

Mr.  Eckels.  I  am  sure  I  do  not  know  how  to  get  rid  of  all  that  silver, 
Mr.  Hill. 

Mr.  Hill.  You  would  not  say  but  such  a  note  as  this  bill  provides 
for,  in  your  judgment,  would  be  safe? 

Mr.  Eckels.  I  would  not  say  it  would  not  be  safe. 

Mr.  Hill.  With  coin  redemption  behind  it? 

Mr.  Eckels.  I  would  not  say  that  it  would  not  be  safe. 

]Mr.  Hill,  AVill  you  say  it  would  not  be  safe  to  this  limited  amount, 
witli  the  first  lien  on  the  assets  and  secured  by  the  double  liability  of 
the  stockholder,  and  based  on  absolute  coin  redemption  ? 

j\lr.  Eckels.  I  would  not  say  that;  but  I  would  not  favor  a  bank 
note  of  any  kind,  whether  it  was  a  note  issued  against  credit  or  issued 
on  a  guaranty  from  the  Government,  if  it  was  not  redeemable  in  gold. 
If  Ave  undertook  to  draw  a  distinction  between  the  thing  in  which  your 
credit  note  is  redeemable  and  the  thing  in  which  your  guaranteed  note 
is  redeemable  at  the  outset,  we  endanger  the  prospect  of  making  the 
credit  note  an  acceptable  note.  There  ought  to  be  more  safeguards 
placed  around  the  credit  note  than  around  the  guaranteed  note. 

j\Ir.  Hill.  You  believe  the  silver  certificates  are  strictly  fiat  money — 
substantially  so? 

Mr.  Eckels,  I  believe  they  are  fiat  money  to  the  extent  of  the  difi'er- 
ence  between  the  value  of  the  bullion  and  the  stamped  value  on  the 
silver  coin. 

Mr.  Hill,  Do  you  believe  it  possible  to  maintain  bank  issues  redeem- 
able in  gold,  with  the  Government  keeping  silver  certificates  in  circu- 
lation ? 

CUR 25 


386  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  I  should  expect  tlie  Government  to  take  care  of  tlie 
silver  certificates. 

Mr,  Hill.  Then  what  are  yoii  going  to  do  Avith  silver? 

Mr.  Eckels.  I  do  not  know. 

The  Chairmax.  That  has  been  answered  several  times  already,  Mr. 
Hill. 

Mv.  lIiLL.  That  is  all. 

The  Chairman.  Mr.  Brosins  has  tlie  lloor. 

DISCUSSION  OF  II.  R.  7247. 

^It.  Brosius.  By  way  of  preliminary,  I  want  to  say  that  I  have 
always  been  impressed  with  the  idea  that  in  legislating  upon  the  money 
question  or  on  the  question  of  banking  and  currency  Ave  must  take 
into  consideration  ej:isting  conditions.  Whatever  our  theory  may  be, 
for  instance,  of  the  true  relation  of  the  Government  to  ])aper  money,  as 
practical  legislators  we  must  consider  existing  conditions,  and  Avhat- 
ever  our  theory  may  be  as  to  the  correct  principle  of  banking  and 
currency,  in  legislating  upon  that  subject  we  must  also  take  into  con- 
sideration existing  conditions.  In  other  words,  the  existing  system 
having  been  long  ago  planted  and  deeiDly  rooted,  we  can  not  pull  it  up 
carelessly  or  recklessly,  and  the  defects  in  the  form  of  tares  must  be 
removed  with  great  care  so  as  not  to  disturb  the  system  itself.  Having 
made  that  preliminary  statement,  T  liave  here  some  inquiries  I  desire  to- 
make,  and  for  the  sake  of  brevity 

A.  Member.  What  is  the  number  of  your  bill  ? 

Mr.  Brosius.  H.  R.  7247.  The  bill  is  simple  in  its  provisions,  and 
for  sake  of  brevity  I  will  simply  propound  certain  practical  inquiries 
which  will  bring  out  the  ideas  incorporated  in  the  bill. 

The  first  one  I  will  read. 

The  Chairman.  This  is  bill  H.  R.  7247.  [For  text  of  H.  R.  7247,  see 
page  149.] 

Mr.  Brosius.  Mr.  Comptroller,  in  view  of  the  extreme  sensitiveness 
of  the  public  mind  and  the  ease  with  which  it  takes  alarm  in  monetary 
matters  at  this  time,  is  it  not  preferable,  from  the  point  of  view  of  prac- 
tical legislation,  to  increase  the  efliciency  of  the  i>resent  banking  sys- 
tem by  amendments  to  the  present  law  which  will  produce  that  result 
without  creating  alarm  in  the  public  mind  rather  than  to  revolutionize 
it  by  the  introduction  of  new  principles  and  methods  in  banking,  the 
result  of  which  in  practice  can  only  be  conjectured  f  That  is  a  very 
general  proposition. 

PEOPLE   DEMAND   NEW  FINANCIAL   LEGISLATION. 

Mr.  Eckels.  It  is  very  unwise  at  any  time  to  create  any  unnecessary 
alarm,  and  yon  are  right  in  your  statement  that  the  i)ublic  is  very 
sensitive  on  the  (luestion  of  a  radical  change  in  banking  and  currency 
legislation.  At  the  same  time  it  seems  to  me  there  never  was  a  better 
time  for  making  necessary  changes,  even  though  they  introduce  a  num- 
ber of  new  elements,  than  the  present,  because  there  never  was  a  time 
when  there  liad  been  such  a  widespread  discussion  of  the  monetary 
question.  I  am  sure  the  verdict  at  the  last  election  was  something 
more  than  a  mere  declaration  that  the  voters  did  not  want  free  coinage 
of  silver.  It  was  more,  also,  than  a  declaration  that  they  were  in  favor 
of  the  g(dd  standard  as  against  the  silver  standard. 

]\ry  intimation  of  that  result  was  that  they  wanted  some  affirmative 
relief.    It  seems  to  me  such  aflirmative  relief  can  only  be  gained  through 


FINANCIAL    AND    BANKING    SITUATION.  387 

changes  in  existing  banking  law  and  in  relieving  the  Treasury  of  the 
things  which  past  experience  has  shown  embarrass  it,  namely,  the 
legal  tender  demand  obligations.  I  think  the  public,  even  though  it  is 
necessary  to  introduce  a  number  of  new  principles  to  do  it,  will  go  farther 
to-day  in  sustaining  departures  in  finance  in  this  country  than  at  any 
time  within  the  last  thirty  years.  It  is  not  necessary  to  overturn  the 
whole  system.  IS^obody  contemplates  sncli  a  course;  but  there  are  cer- 
tain things,  even  thongh  they  are  radical,  which  ought  now  to  be  dealt 
with.  I  believe  that  the  x)eople  expect  it,  and  that  that  was  the  thing 
they  had  in  mind  when  the  result  of  the  last  election  was  brought 
about. 

Mr.  Brosius.  Mr.  Comptroller,  the  inquiry  was  very  general  and  the 
answer  has  been  equally  general.  I  have  no  ])urpose  to  interpose  my 
own  views.     I  am  simply  eliciting  the  views  of  the  Comptroller. 

I  pass  to  the  second  proposition,  and  that  has  been  i)artly  answered 
by  what  has  been  said  already,  anticipating  the  in(|uiry.  Whatever 
may  be  your  view,  Mr.  Comptroller,  of  the  correct  theory  of  the  lelation 
of  Government  to  money,  from  the  point  of  view  of  a  practical  legis- 
lator, taking  into  consideration  the  preponderance  of  the  sentiment  of 
our  i)eople  in  favor  of  retaining  the  greenbacks  in  circulation  as  money, 
would  it  not  be  wise  to  postpone  for  the  time  any  legislation  relating 
to  the  retirement  of  that  portion  of  our  currency  by  the  conversion  of 
it  into  interest-bearing  indebtedness  ? 

POSTPONEMENT   NOT    WISE. 

Mr.  Eckels.  I  am_certain  it  is  not  wise  to  postpone  doing  away  with 
a  thing  which  very  frequently  has  demonstrated  itself  to  be  a  source 
of  business  disaster  to  this  country.  I  do  not  believe  it  is  wise  to 
assume  that  the  public  would  Jiot  sustain  legislators  in  a  matter  of  this 
kind,  if  the  legislators  themselves  stood  up  and  gave  reasons  for  the 
faith  that  was  in  them  why  the  thing  ought  to  be  done.  In  the  retire- 
ment and  cancellation  of  legal  tenders  is  to  be  found  the  only  practical 
way  of  bringing  relief  to  the  Treasury.  It  will  not  come  through  mere 
increase  in  revenues.  If  a  banking  bill  is  enacted  and  no  provision  made 
for  getting  rid  of  the  source  of  the  trouble,  the  banking  situation  is 
improved  and  the  business  interests  of  the  country  in  a  measure  aided, 
but  there  is  still  left  fastened  on  the  country  a  growth  which  is  a  can- 
cerous one,  and  which  in  and  of  itself  carries  elements  which  nuist  in 
the  end  bring  a  great  deal  of  loss  and  at  times  almost  destruction  to 
business  interests. 

Mr.  Brosius.  Are  you  not  aware  that  you  have  proceeded  in  your 
answer  upon  an  assumption  that  the  greenbacks  were  very  dangerous, 
and  that  they  caused  us  a  great  deal  of  trouble! 

Mr.  Eckels.  Yes. 

Mr.  Brosius.  If  I  believed  that  I  would  agree  with  you  perfectly. 

Mr.  Eckels.  I  know  we  differ  upon  the  danger  of  them. 

Mr.  Brosius.  Upon  that  point  I  want  to  ask  you  whether  you  are 
aware  that  not  only  a  large  majority  of  this  Congress,  but  a  large 
majority  of  the  people  of  the  United  States,  do  not  agree  with  you  in 
the  assumption  you  make? 

Mr.  Eckels.  There  is  probably  a  large  majority  in  Congress  aiid  a 
greater  or  less  number  outside  of  Congress  who  believe  it  is  not  the 
politic  thing  to  do,  and  possibly  that  it  is  not  the  practical  thing  to  do, 
but  I  am  sure  there  is  a  majority  of  Congress  who  believe  it  is  the  thing 
which  ought  to  be  done  if  it  could  be  done. 


388  FINANCIAL   AND    BANKING    SITUATION. 


NOTES   ISSUED   AGAINST   ASSETS. 

]\Ir.  Brosii'S.  The  third  proposition  is,  "Whatever  may  be  your  view- 
as  to  the  theory  of  credit  currency  issued  against  the  assets  of  the 
banlv,  inasnnich  as  our  i^cople  for  thirty  years  have  been  accustomed 
to  a  secured  curiency,  would  it  not  be  wise,  for  tlie  i)resent  at  least, 
and  under  existing  circumstances,  to  adhere  to  a  secured  currency 
rather  than  to  authorize  the  banks  to  issue  notes  against  their  assets 
alone ' 

Mr.  Eckels.  I  have  heretofore  stated  that  1  did  not  think  it  would 
be  wise  to  permi*-  the  banks  to  issue  all  their  notes  against  their  assets, 
but  1  thouglit  they  might  very  safely  issue  a  limited  percentage  of  them 
in  such  manner.  I  do  not  think  it  would  be  wise — 1  think  it  w'ould  be 
unwise — to  permit  them  to  issue  all  their  notes  against  their  assets, 
because  that  necessitates  educating  the  people  on  one  line  and  unedu- 
cating  them  on  another,  something  which  can  not  be  done,  except 
gradually. 

PROPOSITIONS   FOR    RELIEF. 

Mr.BROSirs.  The  fourth  pro]iosition  is,  Assuming  the  impracticability 
of  the  retirement  of  the  greenbacks  and  the  issue  of  currency  against 
tlxe  assets  of  the  banks  alone  at  this  time,  can  we,  in  your  judgment, 
do  better  than  to  first  provide  for  the  issue  of  currency  up  to  par,  or 
may  be  the  market  value,  of  the  bond  deposited  to  secure  circulation; 
and,  secondly,  to  i)rovide  for  establishing  banks  with  small  capital  in 
snmll  towns,  as  we  have  already  done;  and,  thirdly,  to  reduce- the  tax 
on  circulation  to  about  one-quarter  of  1  i)er  cent,  so  as  to  make  the 
profits  on  the  issue  of  notes  sufficient  to  induce  banks  to  supply  the 
l^eople  with  as  much  currency  as  they  need  ? 

Mr.  Eckels.  I  did  not  assume,  Mr.  Brosius,  that  it  is  an  impractica- 
ble thing  to  retire  the  greenbacks. 

Mr.  Brosius.  Upon  that  assumption  1  base  the  question. 

Mr.  Eckels.  I  want  it  understood  that  I  do  not  assume  that,  however. 

Mr.  Brosius.  I  understand  that. 

Mr.  Eckels.  But  upon  the  other  point.  I  certainly  think  it  would  be 
wise  as  a  measure  of  legislation,  pending  these  other  things,  which  ought 
to  come  as  rajndly  as  practicable,  to  permit  the  organization  of  snudler 
banks  and  to  permit  the  establishing  of  branch  l)anks.  In  this  way  the 
facilities  of  deposit  and  discount  banking  could  l)e  extended.  I  think 
at  onei)oint  backtliere,  Mr.  Brosius,  you  said  something  about  whether 
or  not  there  was  any  danger  in  the  legal  tender. 

Mr.  Brosius.  You  are  i)roceeding  upon  the  assumption  that  there 
was  danger. 

CAUSES  OF  PRESENT  DANGER. 

Mr.  I'^CKEL!-',.  I  would  like  in  this  connection  to  state  why  I  think  the 
danger  from  the  legal  tenders  is  increased  by  circumstances  which  sur- 
round them.  If  the  Government  possibly  had  had  nothing  outstaiuling 
but  the  8.''>4G,(K)(),{)()0,  it  might  have  gotten  along  without  a  great  deal 
of  trouble  in  taking  care  of  them ;  but  enacted  legislation  has  i)ro(luced 
results  which  have  augmented  what  might  have  been  the  small  danger 
of  the  legal  tenders  into  a  very  large  danger,  Tlie  legislative  acts  to 
which  I  allude  were  those  pro  voiding  that  these  notes  should  be  reissued 
when  once  they  Avere  redeemed,  the  Bland-Allison  Act,  the  adding  the 
great  amount  of  depreciated  silver  currency,  and  the  Sherman  silver- 
purchasing  act,  resulting  in  the  issuing  of  the  silver  Treasury  notes.    All 


FINANCIAL    AND    BANKING    SITUATION.  389 

these  as  contributing?  causes  made  a  thing  which  of  itself  might  not 
have  been  so  harmful  a  source  of  recurring  danger  by  ])laeing  a  great 
additional  burden  upon  the  Government  to  maintain  the  parity  of  the 
moneys  which  it  circulated. 

Mr.  Cox.  May  I  ask  a  question  right  there? 

Mr.  Brosius.  Yes. 

Mr.  Cox.  Now,  Mr.  Comptroller,  is  not  your  mind  thoroughly  made 
up  and  conclusively  made  up  that  no  banking  system  can  be  successful 
unless  the  greenbaclis  of  the  Treasury  are  retired  in  some  way  or  other? 

Mr.  Eckels.  I  do  not  believe  any  banking  system  can  be  of  mate- 
ria! benefit  in  relieving  the  Treasury  Department  unless  provision  is 
made  for  getting  rid  of  the  legal  tenders  and  Treasury  issues. 

Mr.  Cox.  Now,  we  have  got  one  point  from  your  conviction  settled — 
that  the  Treasury  can  not  be  relieved  unless  those  notes  are  retired. 
When  we  come  to  the  next  point  in  the  investigation  of  this  matter,  it 
becomes  a  matter  much  more  with  the  banks  than  it  does  with  the 
Government.     Is  not  that  true? 

Mr.  Eckels.  I  do  not  know  that  I  understand  you,  Mr.  Cox. 

BANKING  MUST   BE   MADE   PROFITABLE. 

Mr.  Cox.  I  mean  this:  That  to  induce  the  banks  to  go  into  the  bank- 
ing system  there  must  be  a  reasonable  assurance  of  profit  to  induce 
them  to  go  in.  You  have  cut  off  and  intend  to  stoi)  this  Treasury-note 
system  of  redemption.  Now  then,  do  not  you  have  to  offer  the  banks 
some  sort  of  encouragement  in  some  way  ? 

Mr.  Eckels.  No  man  will  go  into  a  banking  system  unless  there  is 
apparently  a  margin  of  profit  in  it.  When  the  legal  tenders  arc  can- 
celed, there  has  been  removed  from  tlie  channels  of  trade  and  commerce 
notes  which  to  day  are  directly  in  competition  with  bank  notes  and  thus 
is  made  a  larger  field  for  bank  notes,  with  a  corresponding  increase  in 
profit  from  the  issue  of  them. 

]Mr,  Cox.  Of  course,  that  nuist  depend  upon  the  encouragement  you 
give  to  banks  for  a  reasonable  profit.     Is  not  that  so? 

Mr.  Eckels.  Certainly;  the  banks  must  have  encouragement  in  the 
way  of  profit  or  they  will  not  go  into  the  system.  But  as  I  understand 
it,  Mr.  Brosius  calculates  that  the  increase  in  the  amount  of  notes  they 
can  put  out  in  issuing  either  to  their  i)ar  value  or  to  the  market  value 
gives  them  an  increase  of  profit.  He  would  also  permit  the  establish- 
ing of  small  banks. 

Mr.  Cox.  Does  this  bill  contemplate  the  retirement  of  greenbacks 
and  Treasury  notes  ? 

Mr.  Eckels.  No;  Mr.  Brosius's  bill  does  not  contemplate  that. 

TWO    CLASSES    OF    NOTE«. 

Mr.  Hill.  You  stated  in  criticism  of  my  bill  that  it  would  make  it 
a  matter  of  doubt  in  the  hands  of  the  holder — the  issuing  of  two 
classes  of  bills.  Mr.  Brosius  has  again  referred  to  the  possibility  and 
the  advisability  of  the  issuance  of  credit  currency,  and  you  stated  that 
you  were  not  in  favor  of  an  issue  of  credit  currency  in  excess  above 
the  secured  currency — I  think  you  stated  the  other  day  in  excess  of  25 
per  cent.  I  would  like  to  ask  you  how  you  are  going  to  issue  any 
credit,  currency  in  conjunction  with  secured  currency  without  haviug 
two  forms  of  bills? 

Mr.  Eckels.  Two  forms  of  bills,  but  one  kind  of  redemption  money 
for  both  of  them. 


390  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Hill.  You  do  not  object  to  two  classes  of  bills? 

Mr.  Eckels.  Xo. 

Mr.  niLL.  But  you  do  object  to  different  kinds  of  redemption  money? 

NOTES   ISSUED   AGAINST   STATE   AND   MUNICIPAL   BONDS. 

Mr.  Brosius.  My  next  inquiry  is,  It  further  relief  should  be  needed 
in  the  South  and  West,  where  the  capital  is  less  abundant  and  the  habit 
of  depositing-  current  funds  in  banks  less  i)revalent,  is  there  any  insu- 
perable objection  to  lottino;  banks  issue  notes  on  deposit  of  State  or 
numicipal  l)onds,  in  lieu  of  (lovernment  bonds,  under  such  conditions 
as  will  adequately  safegnard  the  Treasury,  limiting  the  issue,  say,  to 
75  per  cent  of  the  securities  de])osited? 

Mr.  Eckels,  The  notes  issued  against  these  bonds  would  be  just  as 
good,  undoubtedly,  as  those  issued  against  any  other  bonds.  The  only 
possible  danger  in  taking  bonds  other  than  (Government  bonds  would 
be  that  it  would  encourage  municipalities  to  issue  bonds  unnecessarily. 
But  so  far  as  the  security  of  the  notes  is  concerned  the  bonds  of  almost 
any  municipality  which  is  not  distinctively  what  might  be  termed  a  boom 
town  would  be  perfectly  good. 

Mr.  Bkosius.  The  conditions  and  the  restrictions  to  which  I  refer 

Mr.  Eckels.  But,  ]\lr.  Brosius,  the  people  in  these  sections  who  are 
making  the  demand  for  this  bank-note  currency  do  not  want  to  deposit 
security.  They  claim  that  such  method  unnecessarily  ties  up  capital. 
That  is  the  i)oint  of  their  objection,  and  I  do  not  know  whether,  unless 
they  were  given  notes  that  were  not  secured,  they  would  feel  any  better 
about  it  than  they  do  now,  or  whether  they  would  obtain  any  relief. 

^Ir.  Brosius.  I  am  not  inquiring  so  much  about  what  these  ])eoj)le 
want  as  to  what  is  practical  to  give  them.  They  comi)lain,  as  the  Comp- 
troller is  aware,  that  they  can  not  get  Government  bonds,  and  unless 
they  can  bank  on  some  other  kind  of  securities  they  can  not  bank  at  all. 

Mr.  Eckels.  Yes. 

Mr.  Brosius.  If  they  could  bank  on  State  securities  which  they 
already  hold,  they  could  issue  their  currency  and  it  would  not  tie  up 
their  cai)ital,  because  they  would  get  interest  just  the  same  and  simply 
deposit  it  as  collateral  se(;urity.  They  would  be  banking  on  their  own 
capital,  at  the  same  time  using  the  securities  of  the  State  as  collateral 
securities. 

Mr.  Eckels.  I  do  not  see  any  objection  to  that,  as  far  as  the  security 
is  concerned. 

INIr.  Brosius.  Now,  Mr.  Comptroller,  if  these  measures  which  I  liave 
suggested  in  these  ]>ropositions  were  enacted  into  law,  would  not  the 
banks  iu>w  existing  and  those  to  be  organized,  in  that  event  be  able, 
and  Avould  not  the  profits  of  their  issue  induce  them  to  supjdy  comnni- 
nities  with  a  suitable  amount  of  currency  which  would  be  entirely 
secure  and  reasonably  elastic? 

Mr.  locKELS.  Under  the  measures  suggested  you  would  jn-obably  get 
as  much  currency  as  the  country  could  use;  but  whether  you  could 
always  get  it  when  most  needed  is  another  thing.  The  objci'tion  to  a 
iK)te  issue  based  entirely  on  bonded  secairities  is  that  you  have  not  the 
means  at  hand  of  getting  out  the  currency  when  it  is  re(]uired.  For 
instance,  at  a  certain  period  of  the  year  you  haxe  to  have  a  large  amount 
of  currency,  and  before  you  can  get  it  out  on  bonded  securities  you 
must  piocure  and  dejmsit  th<^  bonds,  and  it  not  infre(iuently  happens 
that  before  you  have  done  this  the  necessity  has  ])asse(l  by. 

]\Ir.  Bkosit'S.  Is  there  any  other  relief  from  that  difliculty  except  to 
issue  currency  against  their  assets  ? 


FINANCIAL    AND    BANKING    SITUATION.  391 

Mr.  Eckels.  None  that  I  know  of. 

Mr.  BROSIU8.  Then,  if  it  is  unwise  to  issue  currency  against  the 
assets  alone  we  must  endure  the  difficulty  to  which  you  have  just 
referred  ! 

Mr.  Eckels.  I  suppose  we  will  have  to  put  up  with  certain  banking 
inconveniences;  bnt  understand  me,  Mr.  Brosius,  that  the  point  I  make 
is  that  it  would  not  be  wise  at  the  outset  to  issue  all  bank  notes  with- 
out deposited  security,  but  that  it  would  be  wise  to  undertake  to  issue 
a  certain  per  cent  against  their  assets. 

Mr.  Brosius.  In  order  to  relieve  the  difficulty  to  that  extent! 

Mr.  Eckels.  To  relieve  the  banking  difficulty. 

Mr.  Brosius.  I  am  speaking  of  the  banking  difficulty. 

Mr.  Eckels.  But  issuing  notes  against  the  assets  of  a  bank  or 
issuing  against  bond  security,  M'ith  no  further  provision,  would  not 
relieve  the  Treasury  difficulty  at  all. 

UTILIZING    THE    IDLE    SILVER. 

Mr.  Brosius.  I  would  like  to  ask  one  more  question.  If  these  pro- 
visions to  which  I  have  referred  were  embodied  in  legislation,  would  it 
not  relieve  the  Treasury  situation  to  provide  for  utilizing  the  idle  silver 
now  lying  in  the  vaults  of  the  Treasury  and  the  mints,  not  even  avail- 
able for  the  redemption  of  the  paper  that  was  issued  in  its  purchase — 
lying  there  absolutely  idle — utilize  that  by  placing  it  in  the  reserve 
fund  and  uniting  it  with  the  gold  reserve,  thus  making  a  consolidated 
metallic  fund  for  redemption  purposes,  with  authority  given  to  the  Sec- 
retary of  the  Treasury  to  redeem  greenbacks  and  Treasury  notes,  either 
in  gold  or  in  silver,  to  its  gold  value,  or  in  silver  dollars,  at  the  option 
of  the  holder,  thus  doubling  or  practically  doubling  the  amount  of  our 
reserve  fund  and  making  it  all  available  for  purposes  of  redemption, 
and  that  when  the  Treasury  note  or  a  greenback  is  redeemed  in  this  way 
it  shall  be  canceled  and  not  reissued,  except  on  the  deposit  of  a  corre- 
sponding amount  of  gold,  thereby  converting  all  those  notes  practically 
into  gold  certificates  ?  Would  not  that  strengthen  our  Treasury  situa- 
tion and  help  us  out  of  the  difficulty  to  a  certain  extent? 

Mr.  Eckels.  I  think  that  the  way  the  silver  could  be  of  the  most 
avail  toward  assisting  the  Treasury  situation  would  be  to  sell  it  for  gold 
and  then  make  up  the  difference — let  the  Government  ax-cept  a  loss  on  it. 
I  suppose,  however,  that  if  it  was  converted  into  gold  and  that  gold  i)ut 
into  the  Treasury  you  might  accomplish  some  relief  alter  you  had 
redeemed  the  legal  tenders  by  not  permitting  them  to  go  out,  except  on 
the  deposit  of  gold  in  exchange  therefor.  Every  legal  tender  would 
then  be  converted  into  a  gold  certificate. 

Mr.  Brosius.  Is  not  that  u  good  idea? 

Mr.  Eckels.  Well,  it  would  be  better  than  the  present  situation,  but 
it  is  not  wise  for  the  Government  to  have  out  any  paper  currency  at  all. 
The  issuing  of  paper  currency  is  the  province  of  banks.  You  still,  by 
that  method,  bring  an  element  in  competition  with  the  banks  in  their 
note-issuing  functions. 

Mr.  Brosius.  You  think  that  would  be  better  than  the  present 
situation,  but  not  so  good  as  to  entirely  dispense  with  the  paper  money  ? 

Mr.  Eckels.  I  think  it  would  be  better  than  the  present  one. 

Mr.  Brosius.  The  Con)ptroller  will  understand  that  these  proposals 
bring  out  the  ideas  incorporated  in  my  bill  and  I  do  not  take  up  the 
bill  to  go  through  it  in  detail,  but  for  the  purpose  of  brevity  I  have 
submitted  these  propositions. 


392  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  EcKEL.s.  Ill  this  bill  you  contemplate  a  further  purchase  of 
silver? 

:\Ir.  Brosius.  Yes. 

Mr.  Eckels.  Froiu  time  to  time? 

Mr.  Brosius.  1  think  1  would  modify  that  i)rovisiou.  1  made  uo 
iufiuiry  about  that. 

Mr.  Eckels.  Your  design  would  be  to  make  tlie  present  silver 
available"^ 

Mr.  Brosius.  To  make  the  silver  that  is  now  idle  and  utterly  useless 
available  to  splice  out  the  gold  reserve  that  has  been  inadequate  in  the 
past. 

The  Chairman.  We  have  got  about  forty-six  minutes  left.  I  would 
like  to  take  about  five  minutes  myself  iii  asking  a  few  questions.  Mr. 
Cox,  have  you  any  questions  to  ask? 

Mr.  Cox.  I  want  to  get  at  that  point  clearly. 

The  Chairman.  Please  remember  that  the  time  is  short. 

Mr.  Cox.  I  will  be  brief,  jMr.  Chairman. 

NOTES    REDEEMED    IN    SILVER. 

The  principle  involved  in  that  idea  is  that  you  utilize,  or  try  to  util- 
ize, the  silver  you  have  m  the  Treasury,  for  the  purpose  of  the  first 
retlemptiou,  when  these  Treasury  notes  come  in.  Let  us  get  the  facts 
right. 

:Mr.  Eckels.  I  take  it  that  Mr.  Brosius's  idea  is  to  take  the  silver 
bullion  which  is  deposited  there  and  unite  it  with  the  gold  in  the  Treas- 
ury, both  to  be  used  as  a  redemptive  fund.  Whoever  gets  silver  in 
redemption  of  his  notes  gets  the  quantity  as  measured  by  its  gold 
value,  and  whenever  a  note  comes  in  under  those  circumstances  it  is 
canceled  and  can  only  be  gotten  out  again  by  a  deposit  of  gold.  It  is 
not  unlike  the  rule  observed  by  the  Bank  of  England.  The  plan  is 
that  in  this  manner  every  Treasury  issue,  legal  tender  or  Sherman  note, 
becomes  a  gold  certificate.  You  do  not  design,  Mr.  Brosius,  to  permit 
these  notes  to  be  reissued  on  a  deposit  of  anything  but  gold,  do  you? 

Mr.  Brosius.  No. 

Mr.  Eckels.  Not  with  silver. 

THE  treasury  a  brokerage  shop. 

Mr.  Cox.  That  is  the  way  I  caught  the  point.  Now,  let  us  see  how 
it  works.  I  stop  in  there  with  one  of  the  Treasury  notes,  ami  I  say  1 
will  take  so  much  gold  for  this  note,  or  1  will  take  so  much  silver, at  a 
certain  value  for  tlie  silver  compared  with  gold.  Now,  when  I  make 
that  proi)osition,  ])ractically  the  Treasury  decides  which  way  they  will 
pay  me.  Eor  illustration,  they  pay  me  the  silver,  and  I  take  the  silver 
out  and  they  have  got  the  notes.  Now,  when  1  come  back  to  redeem 
that  note,  J  have  got  to  pay  in  the  gold  ? 

Mr.  Eckels.  Yes. 

Mr.  Cox.  Now,  then,  watch.  Does  not  that  make  the  Treasury  an 
absolute  broker  shop  as  to  the  ])rice  of  silver  and  gold? 

Mr,  EcKLES.  It  makes  the  man  who  presents  his  note  a  purchaser  of 
silver  of  the  (iovernment. 

Mr.  Cox.  Yes,  sir;  and  then  when  he  wants  to  get  rid  of  that  silver 
he  gives  back  and  demands  the  gold.  Vou  have  got  a  Treasury  that 
is  nothing  in  the  Avorld  but  a  brokerage  shop. 

Mr.  Eckels.  That  is  what  it  has  been,  only  the  Government  has  been 
buying  the  silver  instead  of  selling  it. 


FINANCIAL   AND    BANKING    SITUATION.  393 

Mr.  Cox.  I  agree  with  you,  but  that  does  not  answer  the  question. 

Mr.  Eckels.  The  Government  has  been  doing-  tliat  thing. 

Mr.  Cox.  There  is  no  question  about  that,  and  I  think  it  the  most 
erroneous  thing  in  the  worhl;  but  at  hist  the  man  comes  with  his  Treas- 
ury notes  and  be  says, ''  I  will  take  silver  at  a  certain  price,"  and  he  gets 
it.  Conditions  change,  events  turn  around,  and  he  brings  that  back 
and  demands  the  gold.  Does  not  the  Treasury  have  to  pay  in  the 
gold  1 

Mr.  Eckels.  He  biings  the  silver  back  and  demands  tlie  gold? 

Mr.  Cox.  He  brings  his  certificate  back. 

Mr.  Eckels.  He  takes  his  certihcate  there  in  the  first  instance  and 
gets  silver. 

Mr.  Cox.  Pardon  me  there,  for  fear  we  will  not  understand  each 
other.     I  am  treating  the  certificate  as  a  representative  of  silver. 

Mr.  Eckels.  The  certificate  has  gone  into  the  Treasury  and  has 
been  canceled,  so  if  he  wishes  to  get  it  out  again  he  must  go  and 
deposit  gold  for  it.     Is  not  that  your  purpose,  Mr.  Brosius? 

Mr.  Bbosius.  Certainly. 

The  Chairman.  Is  not  that  the  Comptroller's  answer? 

Mr.  Cox.  Probably  it  is  to  the  chairman. 

Now,  I  have  got  the  man  there,  and  he  says,  "I  will  take  the  silver 
for  it." 

Mr.  Eckels.  He  surrenders  his  certificate. 

Mr.  Cox.  Yes.  Now,  that  is  the  silver;  and  afterwards  he  comes  back 
with  the  silver  and  demands  a  gold  certificate  and  the  Government  has 
to  give  it  lo  him  ? 

Mr.  Eckels.  No;  the  Government  does  it  now.  The  Government 
does  not  do  it  under  Mr.  Brosius's  bill. 

Mr.  Cox.  What  does  it  do  ? 

Mr.  Eckels.  It  says:  "You  can  have  your  certificate  if  you  will 
bring  me  gold  for  it.     But  you  can  not  get  it  with  silver." 

Mr.  Cox.  If  he  can  not  work  the  silver  out  he  can  not  get  any  redemp- 
tion for  his  certificate.     He  can  not  get  the  gold. 

Mr.  I-^CKELS.  He  gets  the  silver  in  place  of  it,  if  he  wants  silver 
instead  of  gold. 

Mr.  Cox.  The  man  gets  his  silver  and  he  takes  that  out.  Now  he 
comes  back  to  the  Government  with  his  silver. 

Mr.  Brosius.  He  can  not  do  it  under  my  bill.  If  he  takes  the  silver, 
he  would  dispose  of  it.  He  would  only  want  it  for  export  and  he  would 
have  no  motive  to  bring  it  back. 

Mr.  Cox.  Suppose  he  does  not  take  that  view  of  it? 

Mr.  Brosius.  He  must  take  a  correct  view  of  it. 

Mr.  Cox.  Well,  suppose  he  does  not  take  your  view  of  it,  and  he 
brings  it  back  to  the  Government  and  saj'S,  "  Here  is  my  silver.  I 
demand  the  gold."     What  is  the  Government  going  to  do? 

Mr.  Eckels.  The  Government  says  that  it  is  not  issuing  certificates 
except  on  a  deposit  of  gold. 

Mr.  Cox.  Therefore  the  silver  must  stand  its  chance  with  the  parity 
of  gold? 

Mr.  Calderhead.  And  the  gold  would  go  to  a  premium  at  once. 

Mr.  Cox.  Of  course  it  would ;  it  would  be  at  a  premium  in  twenty 
minutes. 

Mr.  Fowler.  I  understand  that  Mr.  Brosius's  bill  repeals  the  act 
whereby  the  Government  has  to  maintain  the  parity  of  the  metals. 

Mr.  Brosius.  Not  at  all. 

Mr.  Eckels,  As  I  understand  Mr.  Brosius's  bill,  the  silver  is  not 


394  FINANCIAL    AND    BANKING    SITUATION. 

coined.  It  provides  to  give  so  much  silver  bullion  in  exchange  for  cer- 
titicates.     The  Government  sells  its  bullion  to  these  certificate  holders. 

Mr.  Brosius.  Tlie  man  -who  goes  there  to  have  his  notes  redeemed 
Las  a  motive.  lie  Avants  to  ship  it  abroad  and  i)ay  some  balances.  If 
he  uses  it  for  that  ijurjjose,  it  is  done  for;  he  would  have  no  occasion 
to  return;  but  if  he  chose  to  buy  silver  and  bring  it  to  the  (lovernment 
he  could  get  silver  certiticates  for  it,  but  not  gold  certiticates.  Having 
been  redeemed,  that  paper  is  canceled  and  can  only  be  resurrected 
when  somebody  deposits  that  much  gold. 

Mr.  Cox.  He  carries  his  silver  certiticates  back? 

Mr.  Beosius.  No;  he  does  not. 

The  Chairman.  He  has  not  got  any  silver  certificates. 

Mr.  Cox.  k5Ui)i)ose  he  gets  the  silver'; 

Mr.  Eckels.  What  Mr.  Cox  would  like  to  know  is,  if  he  got  the  silver 
could  he  take  the  silver  back  and  get  a  silver  certificate? 

3Ir.  Brosius.  The  bill  does  not  interfere  with  the  silver  certificates 
at  all.  It  contemplates  the  continuance  of  silver  certiticates,  but  if  any 
man  has  silver  now  he  can  go  to  the  Government  and  get  a  silver  cer- 
titicate  ibr  it.  This  bill  does  not  i»rovide  for  any  retirement  of  silver 
certificates  at  all. 

Mr.  Johnson.  I  think  it  is  misleading. 

Mr.  Cox.  It  lias  misled  me. 

Mr.  Eckels.  When  we  »vere  discussing  the  provision  of  Mr.  Brosiiis's 
bill  relative  to  the  silver  bullion  now  in  the  Treasury,  I  said  I  thought 
the  best  thing  would  be  for  the  Government  to  sell  that  silver  for  gold, 
and  accept  its  loss  and  make  up  the  difference.  Mr.  Brosius  reaches 
the  same  result  so  far  as  that  silver  is  concerned,  only  he  would  sell  it 
at  retail  and  I  would  sell  it  at  wholesale. 

Mr.  Brosius.  To  be  determined  by  the  market  price  at  that  time. 

Mr.  Eckels.  Yes;  the  market  v;ilue  in  gold.  That  deals  with  the 
bullion  alone.  No  jirovision  at  all  is  made  to  in  any  wise  change  exist- 
ing conditions  so  far  as  the  silver  certificates  are  concerned;  they  are 
only  issued  against  silver  dollars  coined. 

Mr.  Fowler.  Mr.  Brosius  just  said  that  if  any  man  went  to  the  Gov- 
ernment with  that  same  bullion,  the  price  having  changed,  he  could 
deposit  all  that  bullion. 

Mr.  Brositts.  No;  he  must  treat  that  silver  Just  as  anybody  else  who 
takes  that  to  the  mijit. 

Mr.  Eckels.  He  can  not. 

Mr.  Brosius.  We  are  not  buying  silver  now,  and  under  existing  law 
he  couhl  not.  I  had  in  my  mind  that  we  were  still  issuing  ccrtifi(;ates 
for  silver,  but  Ave  are  not  under  existing  law,  and  he  could  not  bring  it 
to  the  Goverumeut  because  the  Government  is  not  buying  silver. 

secured  currency  not  elastic. 

Mr.  Fowler.  Mr.  Eckels,  in  answer  to  Mr.  Brosius's  question  Avith 
regard  to  a  secured  currency  by  municipal  bonds,  1  think  you  stated  it 
could  be  elastic.    Can  any  secured  currency  be  elastic  ? 

Mr.  Eckels.  No;  I  said  it  could  not  be  elastic. 

Mr.  Fowler.  I  tliink  the  way  you  said  it  will  give  the  impression 
that  you  said  it  could  be  elastic,  and  give  the  requisite  anu)unt  of 
money  in  the  different  localities  of  the  country. 

Mr.  IjCKELS.  I  did  not  speak  about  the  elasticity  of  such  a  system, 
but  I  stated  that  ])robal)ly  for  ordinary  times  there  would  be  enough  cur- 
rency gotten  into  circulation.    The  difiiculty  with  all  bonded  security 


FINANCIAL    AND    BANKING    SITUATION.  395 

is,  at  the  time  an  emergency  might  arise  you  could  not  get  the  increase 
of  circuhition  necessary  to  meet  that  emergency,  because  you  would 
lose  so  much  time  in  purcliasing  yovir  bonds,  etc.  I  explained  the 
matter  at  some  length  in  answer  to  a  previous  question  put  to  me, 

STATE    AND   MUNICIPAL   BONDS. 

Mr.  Fowler.  Does  not  the  condition  of  the  national  banks  of  the 
country  show  that  none  of  the  national  banks  in  the  South  and  West 
and  Southwest  and  Northwest  hold  any  kind  of  municipal  bonds? 

Mr.  Eckels.  Tbey  do  not  make  a  specific  showing  on  the  subject. 

Mr,  Fowler,  They  do  not,  except  buying  and  selling  them  for 
immediate  use. 

Mr.  Eckels.  I  do  not  know  exactly  what  the  character  is  of  the 
stocks  or  bonds  they  carry. 

Mr.  Fowler.  The  point  is  this:  That  in  the  East  national  banks 
invest  a  portion  of  their  assets  in  bonds  and  many  of  their  investments 
are  convertible  in  the  stock  exchange,  while  the  banks  in  the  newer 
portions  of  the  United  States,  or  in  those  parts  of  the  country  where 
they  have  less  money  in  the  form  of  capital  to  deposit  in  banks,  do  not 
have  any  investment  in  the  shape  of  county.  State,  or  city  bonds. 

Mr.  Eckels.  I  think  most  of  the  bonds  of  muuici]ialities  and  State 
bonds  are  held  in  cities  in  New  England  and  in  New  York. 

Mr.  Fowler.  They  are  not  held  by  the  Western  banks  at  all.  Take 
the  States  beginning  with  Virginia  and  sweeping  on  around  and  taking 
in  Texas,  Kansas,  Nebraska,  Dakota,  Minnesota,  and  Ohio,  if  you  ])leaKe, 
outside  of  the  cities;  do  those  baidcs  hold  any  municipal  bonds  as  invest- 
ments? 

Mr.  Eckels.  Comparatively  speaking,  very  few.  Most  of  them  are 
held  in  places  where  there  is  a  surplus  of  investable  capital  that  can  be 
put  into  bonds. 

Mr.  Fowler.  That  is  it,  exactly.  Now,  another  question  on  that 
scheme.  Would  there  be  any  possible  inducement  whatever  lor  any 
national  bank  anywhere  in  the  United  States  where  the  rate  of  interest 
was,  say,  S  per  cent,  or  even  G  per  cent,  to  buy  bonds  of  a  municipal 
character  and  then  issue  75  per  cent  of  those  in  currency,  considering 
the  rate  at  which  the  bonds  are  now  held  in  the  West?  Good  bonds 
run  from  4  to  5  per  cent.  Would  there  be  any  possible  advantage  in 
buying  bonds  and  lending  the  m(mey  that  the  Government  would  give 
you  against  lending  your  own  money  out? 

Mr.  Eckels.  There  would  be  the  same  objection,  I  imagine,  that 
arises  from  investing  so  much  money  in  Government  bonds  and  only 
getting  90  per  cent. 

Mr.  Fowler.  It  is  no  step  forward  at  all,  is  it? 

Mr.  Eckels.  I  suppose  Mr.  Brosius's  idea  was  that  it  would  enlarge 
the  field  of  investment  in  the  establishment  of  banks. 

Mr.  Fowler.  But  if  it  was  not  a  source  of  profit"? 

Mr.  Eckels.  They  would  not  take  out  circulation;  of  course  not. 

Mr.  Fowler.  They  would  loan  their  own  money.  You  have  the 
same  amount  of  money,  and  if  you  have  paid  $100  for  $75  in  currency 
you  have  lost  825,  haven't  you? 

Mr.  Brosius.  My  friend  forgets  that  the  banks  of  the  United  States 
to-day  hold,  in  stock  and  miscellaneous  securities,  about  $11)5,000,000. 
A  large  proportion  of  that  is  drawing  interest  at  the  rate  of  between 
4  and  5  per  cent.  Those  banks  are  largely  investing  their  capital  in 
security  at  4  and  5  per  cent.    It  does  not  take  any  more  money  to  buy 


396 


FINANCIAL    AND    BANKING    SITUATION. 


municipal  or  State  bouds  tliau  it  does  to  buy  railroad  bonds.  If  tliey 
can  take  that  and  issue  75  per  cent  of  that  in  currency,  I  think  they 
are  making  money. 

Mr.  Fowler.  Now,  it  is  a  physical  fact  that  entirely  disposes  of 
your  proposition,  -when  it  is  known,  as  "Mr.  Eckels  has  already  stated, 
that  none  of  those  securities  are  held  in  those  localities  where  tlie 
])eople  are  crying  for  currency.  They  are  held  in  New  England  and 
New  York. 

Mr.  Bkosius.  But  they  are;  that  is  not  a  fact. 

The  Chairman.  This  is  not  in  the  line  of  the  investigation.  Mr. 
Eckels  is  here  giving  liis  views,  and  Ave  are  not  discussing  among  our- 
selves. 

Mr.  Fowler.  Is  it  not  a  fact,  Mr.  Comptroller,  that  the  bonds  held 
by  national  banks  are  lield  in  those  localities  where  there  is  no  need  of 
additional  currency  at  all? 

Mr.  Eckels.  I  have  already  said  that  a  majority  of  them  are  held  in 
the  East  and  in  New  England.  l>ut  I  suppose  Mr.  Brosius's  idea  is  that 
if  these  bonds  were  permitted  to  be  used  for  circulation,  there  would 
be  more  inducement  for  home  people  to  buy  them. 

Mr.  Fowler.  But,  as  a  matter  of  fact,  to-dav  they  do  not  buy  them 
at  all. 

Mr.  Eckels.  No;  such  bonds  are  all  sold,  or  at  least  the  most  of 
them,  in  New  York  Citj^.  They  are  bouglit  in  large  blocks  and  from 
there  distributed  to  people  who  wish  to  make  investments  in  other 
I)arts  of  the  country  for  the  purpose  of  having  a  fixed  income. 

miscellaneous   stocks  held   EY   NATIONAL   BANKS. 

Mr.  Brosius.  Please  allow  me  one  word  tliere.  He  has  stated  that 
these  securities  were  not  held  in  the  sections  of  the  country  where  they 
were  demanding  increased  banking  facilities  and  more  money.  I  hold 
in  my  hand  the  statement  compiled  from  the  rejiort  of  the  Comptroller 
of  the  Cnrrency  for  all  the  Southern  States — 22  of  them — with  the 
amount  of  stock  and  securities  held  by  each  one,  showing  that  in  every 
State  considerable  amonnts  of  these  miscellaneous  stocks  and  securities 
are  held  by  the  national  banks. 

Mr.  FowLEij.  Will  you  give  those  statements  with  the  amount  of 
stocks  and  bonds? 

Mr.  Biiosius.  Yes,  sir;  they  are  as  follows: 


States. 


Stocks  and 
securities. 


Virginia $1, 157, 518 

Noil  1)  Carolin.a 316.  GO:i 

Soiitli  Ciuoliua I        931,  496 

Georgia \        823, 814 

]'"l«)ri(l:i I        744,  427 

Missouri , 7,  040,  668 


Soiilli  Dakota. 
Neliraska. .. 

Kansas 

Tennessee .. 

Alabama 

Mississippi 


021, 154 
1,  205,  022 

944,  988 

970.  020 
1,152,953 

414,  522 


States. 


Louisiana... 

Texas 

Arkansas ... 

Montana 

Wyoming  ... 

Colorado 

Utali 

Nevada 

Idalio 

Washington 

Total  .. 


Stocks  and 
.securities. 


229, 525 
362.  977 
117,671 
231, 133 
217,  961 
725,  506 
273, 093 
9.565 
517.  488 
149, 172 


1, 
25, 157,  276 


Mr.  Calderheat).  While  the  banks  in  the  22  Southern  and  West- 
ern Sta-res  hold  82r),ir>7,()0(>  in  stocks  and  seciirities,  I  would  like  to 
add  to  that  statement  that  the  banks  in  the  2.'i  Northern  and  Eastern 
States  hold  $105,035,000  in  stocks  and  securities. 


FINANCIAL    AND    15ANKING    SITL'ATION.  397 

Mr.  Fowler.  Isn't  it  a  fact  that  these  bouds  that  yuii  speak  of  are 
held  in  the  huge  cities  of  those  States  by  tlie  large  banks,  and  not  by 
the  conntry  banks? 

Mr.  Brositts.  They  do  not  have  large  cities  there. 

Mr.  Eckels.  As  a  general  thing  the  city  banks  hold  more  stock  than 
conntry  banks,  bnt  I  do  not  know  how  much  of  the  kind  of  stock  which 
he  enumerates. 

Mr.  Fowler.  Is  it  not  a  fact  that  a  great  many  bonds  are  tempo- 
rarily bought  by  national  banks  simply  for  the  i)nrpose  of  negotiation 
in  those  Southern  States,  and  they  do  not  expect  to  hold  them,  but 
expect  to  sell  them  ? 

Mr.  Eckels.  My  idea  is  that  as  a  rule  all  the  bonds  of  municipal- 
ities and  States  are  handled  by  stock  brokers  and  bond  houses  in  New 
York,  Boston,  or  other  large  cities.  They  are  bought  there  in  their 
entirety. 

Mr.  Fowler.  Is  it  true,  Mr.  Eckels,  that  these  bonds  are  bought 
much  more  by  banks,  who  lirst  buy  these  issues  and  then  go  on  to  New 
York  and  negotiate  them? 

Mr,  Eckels.  Most  of  them  are  bought  by  the  houses  that  make  that 
their  business.  The  percentage  of  municipal  bonds  held  by  the  banks 
is  not  very  large. 

]Mr.  Fowler.  Is  there  anything  in  the  reply  that  Mr.  Brosius  made 
to  show  whether  these  are  railroad  bonds? 

Mr.  Brosius.  Nothing  at  all.  They  are  designated  as  miscellaneous 
stocks  and  securities..  It  would  not  take  any  more  or  any  less  money  to 
buy  them  than  to  buy  railroad  bonds. 

Mr.  Fowler.  But  it  does  not  necessarily  follow  that  those  are  cov- 
ered by  your  bill. 

Xlr.  Brosius.  I  do  not  know  how  many  municipal  bonds;  but  it  does 
not  take  any  more  money  to  buy  municipal  bonds  than  railroad  bonds. 

CREDIT    CURRENCY. 

Mr.  Fowler.  I  understood  you  to  say  to-day  (or  the  other  day)^  by 
intimation — and  if  I  am  mistaken  I  would  like  to  be  corrected — that 
you  thought  any  jDrinciple  of  secured  currency  was  unsoun^i  and  not  a 
proper  basis  of  currency. 

Mr.  Eckels.  That  it  was  not  a  correct  banking  principle. 

Mr.  Fowler.  Do  you  think  it  would  be  prudent  to  allow  the  banks 
of  this  country  now,  having  become  accustomed  to  a  system  of  secured 
currency,  to  at  once  adopt  the  system  of  credit  currency  without  the 
supervision  of  some  i^ublic  official  as  to  their  right  and  privilege  to 
take  it  out? 

Mr.  Eckels.  No,  I  should  not  permit  it  at  all. 

Mr.  Fowler.  You  would  leave  it  under  the  supervision  of  public 
officials  ? 

Mr.  Eckels.  Yes ;  I  think  the  issuance  of  currency  ought  to  be  super- 
intended by  public  officials,  whether  it  is  secured  currency  or  unsecured 
currency. 

Mr.  Fowler.  As  I  understand  you,  in  answer  to  Mr.  Hill's  measure, 
I  think  it  was,  you  stated  that,  in  your  judgment,  granting  them  the 
privilege  of  taking  out,  say,  in  the  outset,  20  or  25  per  cent  of  credit 
currency,  such  25  per  cent  should  be  under  the  permission  or  control 
of  a  j)ublic  official  ? 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  And  that,  having  once  started  upon  the  course  of 


398  FINANCIAL    AND    BANKING    SITUATION. 

credit  currency,  the  result  of  the  system  should  be  an  (,'volution  into  a 
credit  system  entirely  a.uainst  a  secured  system  ' 

Mr.  ECKEL8.  I  believe  that  Avould  be  the  linal  outcome. 

My.  Fowler.  But  that  it  should  be  one  of  evolution? 

Mr.  'i^CKELS.  Yes. 

The  Chairman.  I  would  like  to  ask  a  few  questions  that  will  i^erhaps 
interest  the  committee. 

If  you  turn  to  pa.ne  5  of  your  report  you  will  lind  a  headiiiii',  "  Sum- 
mary of  the  state  and  condition  of  every  national  bank  n'[)orted  dnriiij;- 
theyear  endin*;' October  G,  189(5,"  and  then  the  last  column  at  tlie  ri<ilit, 
October  0,  180(>,  g-ives  the  last  report.  That  is  on  page  10.  Turning 
over  to  page  15,  here  at  the  bottom  of  the  page  it  says,  "The  condi 
tion  of  State  banks  and  banking  associations."  Now,  is  it  fair  to  write 
in  there,  "  Conditions  of  State  banks  of  loan  and  discount  ?"  Are  you 
comparing  those  banks — State  banks — doing  the  same  kind  of  business 
as  the  banks  you  rex^ort  as  national  l>anks,  on  ])age  10  t 

Mr.  Eckels.  It  is  virtually  the  same  kind  of  banks,  because  you  see 
there  is  a  separate  report  as  to  the  condition  of  savings  banks. 

Mr.  Brosics.  Where  is  the  comparison  made  to  which  you  refer? 

The  Chaieman.  It  is  not  a  comparison,  but  statistics  on  page  10  and 
on  page  15. 

On  i)age  10,  the  second  table,  it  says  9156 — all  baidcs.  That  does 
not  include  the  savings  banks.  Those  are  the  same  banks  you  refer  to 
on  ])ages  10  and  15,  are  they  not? 

]\Ir.  Eckels.  No;  with  the  addition  of  the  savijigs  banks. 

The  Chairman.  Do  ;\'ou  mean  to  say  that  the  savings  banks  are  not 
included? 

Mr.  Eckels.  Yes;  on  page  19.     Y'ou  find  on  page  17 

The  CiiAiRMAiV.  But  you  will  find  on  page  10  the  loans  and  discounts 
on  October  G  are  given  at  $1,893,268,829.  You  will  find  on  page  15  the 
loans  and  discounts  are  given  as  $2,348,19,"5,077.  Y'ou  add  those 
together  and  it  gives  you  the  same  $4,000,000,000,  or  about  that,  so 
that  is  what  I  want  to  Inive  explained.  It  seems  to  me  that  if  the  table 
at  the  bottom  of  ])age  15  is  of  the  loan  and  discount  banks,  then  ceitainly 
the  table  on  i)age  19  does  not  include  savings  banks.  When  yon  cor- 
rect your  testinu)nv,  i)k'ase  make  that  clear;  and  so  I  pass  on.  You 
will  see  that  your  iir!l,800,()(K>,000  added  to  your  $2,200,000,000  will 
make  about  the  same  as  your  total  of  all  loans.  State  and  national, 
on  i)age  19. 

Mr.  Eckels.  I  do  not  think  it  does  include  the  savings  baidvs. 

The  ('iiAiRMAN.  Then  it  is  safe  for  me  to  assume, in  any  estimates  or 
figures  or  investigations  1  may  make,  that  this  table  on  page  19  includes 
the  loans  and  capital  and  cash,  etc.,  of  all  disc^ount  banks,  M'hether 
State  or  national.  One  word  further.  That  is  the  word  "cash."  In 
this  second  table,  page  19,  how  much  of  that  is  gold,  or  is  it  gold  and 
silver,  or  what  is  it? 

Mr.  ICckels.  It  includes  all  kinds  of  cash. 

The  ('iiAiR.AiAN.  Eractiomil  and  everything  else,  and  do  they  hold 
as  much  as  $512,000,000  clear  from  certilicates,  or  do  you  count  gold 
certificates  ? 

Mr.  Eckels.  Yes;  all  kinds  of  cash. 

Tiie  CiiAiU'MAN.  It  counts  all  forms  of  metallic  money  or  certificates 
of  nu'tallic  money.     Is  that  llu^  idea  ? 

]\Ii'.  JOcKELS.  Yes;  si)e(;ie  and  other  currency  held  by  the  national 
banks  on  .Inly  II,  and  by  other  banks  about  the  same  time,  amounted 
to  $135,000,000. 


FINANCIAL    AND    BANKING    SITUATION.  399 


THE    (JAKLiSLE    ]JILL. 

The  Chairman.  In  the  first  place,  I  want  to  ask  whether  tliis  bill 
reported  by  Mr.  Cox  has  been  materially  changed  as  to  the  amount  of 
greenbacks  that  are  required  to  be  deposited  in  pro])ortion  to  the  cur- 
rency issued,  or  as  to  the  currency  to  be  issued,  whether  it  remains 
the  s;ime  as  when  Mr.  Carlisle  presented  it? 

M)-.  Eckels.  1  think  it  is  the  same  bill,  with  some  changes  to  it;  I  do 
not  know  whether  any  changes  have  been  made  in  it  or  not, 

Mr.  Cox.  On  the  question  of  currency  it  is  the  same  bill. 

The  Chairman.  Look  at  the  statement  of  Mr.  Carlisle  on  page  29 
of  the  report  of  the  hearing  before  this  committee  on  December  10, 
1894.     Mr.  Carlisle  said,  in  reply  to  my  question — I  read  as  follows: 

Mr.  Walker.  Have  yon  thought  of  how  long  a  time  ifc  would  take  to  retire  the 
greenbacks  f 

Mr.  Caklisle.  It  might  he  done  in  twenty  years  or  it  might  be  done  in  iive  or  six 
years. 

The  Chairman.  Now,  the  point  is  whether  you  would  proceed  with 
legislation  upon  the  theory  that  it  would  take  twenty  years  or  five  or 
six  years. 

(After  a  pause.)  Well,  as  you  do  not  answer,  my  question  can  be  i)ut 
down  and  no  answer  need  be  put  down. 

JMr.  Cox.  I  want  to  say 

Mr.  Eckels.  I  think  that  is  a  question  that  Mr.  Carlisle  ought  to 
answer. 

Mr.  Cox.  I  want  the  answer  of  Mr.  Carlisle  put  in  tlie  record. 

The  Chairman.  I  have  the  floor, 

Mr.  Cox,  I  think  it  is  proper 

The  Chairman.  The  gentleman  is  out  of  order. 

This  bill — the  Cox  bill — temporarily  confines  the  legal  tenders,  but  it 
does  not  destroy  them.  They  still  remain  in  sight  of  the  people  in  the 
Treasury  as  a  deposit,  do  they  not? 

Mr.  Eckels.  Yes;  they  are  kept  there  as  a  deposit. 

The  Chairman.  And  in  the  eyes  of  the  people  the  same  as  the  silver 
is  that  they  are  now  clamoring  should  be  paid  out,  notwithstanding  the 
certificates  are  out  against  it.     Do  you  think  that  is  a  wise  x>olicy  ? 

Mr.  Eckels.  I  have  stated  thatl  think  those  things  ought  tobej)aid 
and  cancelled  and  gotten  out  of  the  way. 

The  Chairman.  "^Isn't  it  a  fact  that  the  bill  H.  R.  171 

Mr.  Cox.  I  rise  to  a  question  of  personal  i^rivilege. 

The  Chairman  (continuing).  Does  not  transform  the  legal-tender 
notes  of  the  Cxovernmeut  into  bank  currency? 

Mr.  Eckels.  I  think  the  provision  of  your  bill  is  to  change  the  form 
of  them,     I  think  that  the  Secretary's  bill,  or  Mr.  Cox's  bill 

Mr.  Cox.  It  is  the  Secretary's  bill, 

Mr.  Eckles  (continuing).  Provides  for  the  retirement  of  the  legal 
tenders  by  reviving  the  old  statute  that  so  many  should  be  retired  in 
accordance  with  the  percentage  of  bank  notes  issued. 

The  Chairman.  But  in  the  first  instance 

Mr.  Eckels.  They  are  deposited  as  a  security. 

The  Chairman.  One  fu-rther  question. 

Mr.  Cox.  I  rise  to  a  question  of  personal  privilege. 

The  Chairman.  The  objection  to  the  use  of  bonds  is  covered  by  bill 
H.  R.  171.  Is  not  the  security  equally  a  Government  security  when 
the  Government  is  obligated  to  pay  upon  the  insolvency  of  the  bank, 


400  FINANCIAL    AND    BANKING    SITUATION. 

and  as  sure  and  as  positive  as  holding  a  l)ond  -^liicli  the  Government 
does  for  the  money — is  not  that  i)ra('tienlly  tlie  same  security  for  the 
notes? 

Mr.  Eckels.  I  wouhl  just  as  lief  have  the  Governmeuf  s  guaranty 
as  the  bond. 

The  Chairman,  l^ow,  Mr.  Cox. 

jMr.  Cox.  Now,  let  us  put  everybody  square  on  this  question.  I 
read  the  answer  of  the  Secretary  to  which  Mr.  Walker  referred.  It  is 
as  follows.     Mr.  Walker  put  this  question: 

Mr.  Walkeu.  Have  you  thought  of  how  loug  a  time  it  would  take  to  retire  the 
greeubacks  ? 

Jlr.  Caui.islt'..  It  may  bo  it  wouM  take  twenty  years,  and  it  might  bo  douo  in  live  or 
six  years.  If  the  projjosed  law  had  been  enforced  during  Mr.  ( 'lovehnid's  last  Admin- 
istration or  during  Mr.  Harrison's  Administration,  the  greenbacks  would  have  been 
retired. 

The  Chairman.  That  is  expressing  an  opinion. 

Mr.  Cox.  That  is  an  expression  of  o[)ini()n,  but  he  has  as  much  right 
to  express  an  opinion  as  you  have.    That  is  on  page  29. 

Mr.  Eckels.  I  do  not  think  the  Secretary  of  the  Treasury  tliought 
this  was  the  best  way  of  getting  rid  of  them,  but  it  seemed,  at  the 
time  the  plan  was  offered,  a  commencement. 

Mr.  Cox.  J  do  not;  but  he  is  doing  the  best  he  can. 

ARE  THE  greenbacks  DANGEROUS? 

Mr.  Spalding.  Mr.  Comptroller,  you  seem  to  have  indicated  in  all  your 
answers  and  questions  pertaining  to  the  greenbacks  that  the  Govern- 
ment Avas  in  danger  because  they  were  out.  Now,  is  it  not  true  that 
there  was  no  danger  or  apprehension  of  danger  up  to  JNIarch  4,  four 
years  ago;  that  up  to  that  time  there  was  no  danger  and  there  was  no 
raid  on  the  Treasury,  and  the  greenbacks  were  doing  their  usual  duty 
of  a  currency  with  the  peoi)le,  and  the  people  were  well  satisfied  with 
them? 

Mr.  Eckels.  There  was  danger  then,  but  it  was  not  so  apparent.  The 
conditions  which  developed  it  Imd  not  rea(;hed  the  proportions  which 
they  have  since  reached,  in  the  fact  that  the  burden  resting  upon  the. 
Treasury  in  the  maintaining  tlie  parity  of  metals  was  not  so  great  asit 
has  been  during  the  i)ast  four  years.  We  have  to  deal  with  conditions 
as  we  find  them  to  day,  instead  of  with  the  conditions  of  four  or  five 
years  ago.  If  the  condition  may  have  been  all  right  four  or  five  years 
ago,  it  is  all  wrong  now. 

PROPOSED   BOND   ISSUE   OF   THE   HARRISON    ADMINISTRATION. 

Mr.  Johnson.  Is  it  not  a  fact  that  during  the  last  ])art  of  the  ITar- 
rison  Adnnnistration  the  receij)ts  of  gold  for  customs  i)ayment  largely 
fell  off,  ami  a  large  number  of  greenbacks  and  Treasury  notes  were 
presented  to  the  Treasury,  and  gold  drawn  out  of  the  Treasury  on  them  ? 

Mr.  Eckels.  Yes;  and  it  is  a  further  fact  that  iu  the  last  rejmrt  made 
by  Mr.  Foster,  the  then  Secretary  of  the  Treasury,  attention  was  called 
to  the  fact  that  there  was  an  inadequate  sup[)ly  of  gold  ami  inadequate 
means  givcni  to  the  Secretary  of  the  Treasury  to  ]n'ovide  gold  to  meet 
tlu^  additional  burden  ])utupon  the  Treasury  through  the  issuing  of  the 
Sherman  notes.  Not  only  that,  but  the  bond  plate  had  been  already 
pre])ared  for  the  ]mr])ose  of  issuing  bonds  to  obtain  the  gold. 

Mr.  Johnson.  It  is  the  fact,  then,  is  it  not,  that  the  drain  upon  the 
gold  in  the  Treasury,  while  it  had  not  gotten  down  to  the  ]>oint  of 
reaching  the  gold  reserve,  had  been  steadily  going  on  during  the  last 
months  of  the  llairisou  Administration! 


FINANCIAL    AND    BANKING    SITUATION.  401 

Mr.  Eckels.  Yes;  it  commenced  in  1892. 

Mr.  Cox.  I  want  to  pnt  this  question  to  tlie  Comptroller:  I  want  to 
ask  him  if  it  is  not  a  fact  in  the  history  of  the  Treasury  Department 
that  during-  the  Harrison  Administration,  when  the  greenbacks  were 
jiresented,  those  greenbacks,  amounting  to  several  hundred  thousand 
dollars,  were  redeemed  in  silver  by  the  Administration  of  Mr.  Harrison? 

Mr.  Eckels.  I  am  sure  1  do  not  know  as  to  that. 

Mr.  Cox.  Call  the  Treasurer  here  and  he  will  tell  you  that  is  so. 

Mr.  Hill.  I  want  it  to  go  into  the  record  right  here  tlmt  the  state- 
ment made  by  Mr.  Dingley  last  year,  in  connection  with  this  matter, 
was — and  I  think  in  connection  with  the  statement  made  by  the  Comp- 
troller it  should  go  in  here — that  Mr.  Foster  came  to  the  Ways  and 
Means  Committee  in  1892  and  said  that  there  would  be  sufificient  reve- 
nue to  meet  the  expenses  of  the  Government;  but  that  after  the  elec- 
tion of  1892  was  over  the  falling  off  in  revenues  was  so  great  that  he 
came  to  that  committee  in  February,  1893,  and  said  that  there  would 
probably  be  a  deficiency  of  ."$50,000,000  in  the  revenues,  and  it  was  for 
that  bonds  were  to  be  issued. 

GREENBACKS   AN   EXPENSIVE    CURRENCY. 

Mr.  Spalding.  Is  it  not  true  that  the  greenback  is  a  cheaper  cur- 
rency than  any  credit  currency  or  national-bank  currency? 

Mr.  Eckels.  No;  it  is  the  most  expensive  currency  ever  floated  in 
this  country. 

Mr.  Spalding.  How  much  has  been  paid  out  in  gold  in  the  redemp- 
tion of  greenbacks  under  this  Administratioii  ? 

Mr.  Eckels.  I  do  not  remember  the  exact  amount. 

Mr.  Spalding.  Four  hundred  and  forty  million  dollars,  in  round 
numbers. 

The  Chairman.  It  is  all  a  matter  of  record. 

Mr.  Spalding.  No;  it  is  not  all  a  matter  of  record. 

How  much  gold  was  put  into  the  Treasury  by  the  exchange  of  green- 
backs for  gold? 

Mr.  Eckels.  I  can  not  say. 

Mr.  Spalding,  I  have  it  direct— 1195,000,000  and  over.  Add 
$195,000,000  to  the  deficit  which  occurred  and  it  would  almost  account 
for  the  entire  gold,  with  the  greenbacks,  would  it  notf 

Mr.  Eckels.  I  do  not  think  so. 

Mr.  Spalding.  Add  $195,000,000  to  a  deficit  of  $180,000,000  or 
$190,000,000,  and  it  makes  pretty  near  the  amount  taken  out  of  the 
Treasury.    I  have  that  and  can  furnish  it. 

Mr.  Eckels.  You  had  better  put  it  in  the  record. 

The  Chairman.  Suppose  you  get  your  certificate  to  that  effect  and 
put  it  in  tlie  record. 

Mr.  Spalding.  I  don't  need  any  certificate.  You  have  furnished  no 
certificate  for  a  great  many  of  your  statements. 

Would  it  be  a  safer  currency  issued  on  any  of  the  assets  of  the  banks, 
even  25  per  cent,  as  the  present  currency? 

Mr.  Eckels.  A  safer? 

Mr.  Spalding.  Yes. 

Mr.  Eckels.  No;  you  could  not  get  a  safer  currency  as  long  as  the 
Government  meets  its  obligations.  No  one  has  ever  questioned  the 
safety  of  the  present  national-bank  currency. 

Mr.  Spalding.  That  is  true,  because  the  notes  are  redeemed  by  the 
Government  in  greenbacks,  which  are  lawful  money.  Now  is  it  not  true 
CUR 2G 


402  FINANCIAL    AND    BANKING    SITUATION. 

if  you  have  $450,000,000  in  greenbacks  and  you  keep  $100,000,000 
tlieVe  are  $350,000,000  upon  which  you  ]iay  no  interest;  and  under  the 
uatioiuil-bank  system  they  do  pay  interest  on  tlie  eurroney,  inasmuch 
as  they  pay  interest  on  their  bonds? 

]\Ir.  EcKLES.  You  do  not  pay  interest  in  the  form  of  interest  on  bonds, 
but  you  lose  interest  on  the  reserve  you  keep  and  yon  ]>ay  interest  on 
that  which  you  have  to  use  at  certain  times  to  maintain  yonr  ^ohl 
reserve.  Thus  when  you  come  to  estimate  the  expense,  the  expense  is 
hirg-er  by  not  i)aying  and  canceHng  them.  Then,  too,  there  is  no  end 
to  the  number  of  times  the  same  process  is  jione  tlirongh  with. 

Mr,  SPALDiNCf.  Bonds  are  issued,  not  for  tlie  purpose  of  a  circulating 
medium,  but  for  sale  by  the  Government  on  account  of  its  necessities; 
and  they  were  bought  by  the  banks  and  put  up  as  security  for  their 
notes,  and  they  drew  interest  on  their  l)onds  and  drew  interest  on 
their  issue.     Is  not  that  true? 

Mr.  Eckels.  Yes, 

Mr.  Spalding,  Is  not  that  a  more  expeusive  system  than  the  other? 

The  Chairman,  Your  time  is  up, 

Mr.  Cox.  1  want  this  point  clearly  understood,  that  during  the 
Administration  of  Mr.  Harrison  the  plates  were  prepared  for  bonds  to 
redeem  those  greenbacks,  and  not  only  that,  but  .Mr.  Foster,  his  Secre- 
tary of  the  Treasury,  did  redeem  a  large  amount  of  greenbacks  in 
silver.     Is  not  that  the  foct  ? 

Mr.  EcKLES.  I  do  not  know  anything  about  any  redemption  in  silver. 
I  know  that  Secretary  Foster  held  to  the  idea  that  the  Treasury  Depart- 
ment, with  the  increased  amount  of  demand  obligations  standing  against 
the  (iovernment  and  without  any  additional  power  vested  in  the  Sec- 
retary to  provide  gold,  was  approaching  a  condition  of  embarrassment, 
and  that  legislation  ought  to  be  had  upon  the  subject,  and  that  it  was 
the  i)urpose  to  issue  bonds  under  the  then  existing  laws  relative  to 
maintaining  the  gold  reserve. 

yiv.  Cox.  I  understand. 

Mr.  Eckels.  Mr.  Hill  says  it  was  for  current  expenses,  but  if  it  was 
for  current  expenses  it  was  under  a  provision  of  law  to  provide  a  gold 
reserve  against  the  payment  of  these  notes. 

Mr.  Cox.  I  do  not  want  to  press  the  i)oint  any  further  except  to 
emphasize  this :  That  in  the  Administration  of  President  1  larrison  silver 
was  paid  out  when  greenbacks  and  Treasury  notes  were  presented. 
They  paid  these  notes  off  to  the  extent  of  $700,000  in  silver. 

Mr.  Eckels.  I  do  not  know  anything  about  that. 

Mr.  Newlands.  Mr.  Eckels  stated  that  in  his  judgment  the  silver 
now  in  the  Treasury  ought  to  be  sold  and  turned  into  gold.  He  saifl 
that  the  difference  between  himself  and  Mr.  IJrosius  was  that  Mr. 
Brosius  wanted  to  sell  it  at  retail  and  he  proposed  to  sell  it  at  whole- 
sale. Xow,  I  want  to  question  Mr.  Eckels  somewhat  upon  that — as  to 
how  he  would  do  it,  and  as  to  what  effect  it  would  have,  etc. — and  I 
would  like  to  have  an  opportunity  to  ask  some  questions.on  this  line. 

Mr.  Eckels.  That  was  in  connection,  Mr.  Newlands,  with  tlie  i)ro- 
vision  in  Mr.  Erosius\s  bill  where  he  provides  a  certain  way  of  getting 
rid  of  the  greenbacks,  and  I  said-I  i)referred  the  other  way,  as  between 
the  two.  That  is  simply  in  connection  with  the  i)rovision  in  Mr. 
Brosius's  bill. 

Mr.  Caldekhead.  When  Mr.  Eckels  returns,  on  Thursday.  I  want 
to  in(iuire  about  how  much  the  suspension  of  gold  payments  by  the 
subtreasury  in  i)aying  its  balances,  as  it  occurred  once,  had  to  do  with 
the  loss  of  the  gold  in  the  Treasury. 

Thereupon,  at  i>.15  p.  m,,  the  committee  adjourned. 


FINANCIAL    AND    BANKING    SITUATION.  403 

Committee  on  Banking  and  Currency, 
Washington,  J).  C,  Thursdai/,  February  18,  1897. 
The  committee  met  at  10.30  a.  m.     Members  present:  The  Chairman 
(Mr.  Walker)  and  Messrs.  Brosius,   Johnson,  Van  Voorhis,   Fowler, 
Spalding-,  Calderhead,  Hill,  Cox,  Stallings,  and  Hendrick. 

PJon.  James  H.  Eckels,  Comptroller  of  the  Currency,  appeared  before 
the  committee  and  concluded  his  statement  begun  on  January  28,  1897. 

STATEMENT   OF   HON.  JAMES  H.  ECKELS,  COMPTROLLER  OF  THE 

CURRENCY— Continued. 

The  Chairman.  Mr.  Fowler  has  the  floor  and  will  proceed  to  inter- 
rogate Mr.  Eckels  on  House  bill  6442.     [For  text  of  bill  see  page  107.] 

Mr.  Fowler.  Mr.  Eckels,  in  your  opinion  is  it  not  true  that  the 
chief  source  of  our  financial  troubles  to-day  is  that  our  national  credit 
is  in  doubt? 

Mr.  Eckels.  I  believe  the  most  of  our  financial  difficulties  have 
sprung  from  that  fact  in  the  past  several  years,  and  while  it  is  not  so 
patent  to-day  as  it  was  some  months  since,  the  danger  that  the  same 
conditions  are  liable  to  occur  makes  it  a  source  of  doubt. 

The  Chairman.  That  is,  doubt  to-day"? 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  Is  it  not  your  opinion  that  the  injury  to  our  credit  is 
mostly  due  to  the  fact  that  it  is  still  a  debatable  question  whether  the 
United  States  will  maintain  gold  payments  of  all  its  demand  obligations  ? 

Mr.  Eckels.  I  have  no  doubt  with  a  great  many  people  the  con- 
tinual suggestion  that  we  are  going  to  have  another  campaign  upon  the 
same  lines  as  the  last  has  created  in  their  minds  a  question  as  to 
whether  or  not  we  might  not  be  brought  to  a  silver  basis,  although  I 
myself  do  not  believe  we  will  ever  get  that  far. , 

GOLD   AND    SILVER   REDEMPTION. 

Mr.  Fowler.  Is  it  not  your  opinion  that  this  debate  will  continue 
until  this  Government  takes  some  decisive  step  looking  to  its  construc- 
tion of  the  word  "coin"  and  determining  definitively  that  our  dollar  is 
25.8  grains  of  gold,  nine-tenths  fine,  and  not  50  cents'  worth  of  silver 
bullion? 

Mr.  Eckels.  I  think  that  is  determined  already,  so  far  as  the  law  on 
the  statute  book  is  concerned,  but  I  imagine  that  in  the  minds  of  a 
great  many  people  who  are  either  doing  business  living  here  or  doing- 
business  with  us  from  abroad,  there  is  a  doubt  in  the  midst  of  all  this 
agitation  as  to  whether  or  not  we  will  maintain  it  at  that  point. 

Mr.  Fowler.  To  what  law  do  you  refer  when  you  say  it  is  deter- 
mined by  law  already? 

Mr.  Eckels.  We  have  here  as  a  standard  of  value  the  gold  dollar 
established  by  the  act  of  1873,  though  recognized  as  a  matter  of  fact 
long  before  that  act.  The  word  "coin,"  however,  as  used  in  the  bonds 
and  as  used  in  the  Treasury's  legal-tender  paper,  is  not  definitely 
decided  as  a  matter  of  law  to  mean  gold.  It  is  only  as  a  matter  of 
practice  on  the  part  of  the  Secretaries  of  the  Treasury.  The  attaching 
of  that  meaning  to  it,  though,  is  emphasized  by  the  statutory  declara- 
tion that  the  established  policy  of  the  Government  is  to  maintain  the 
parity  of  the  two  metals. 

Mr.  Fowler.  Is  it  not  a  fact  that  the  silver  dollar  is  coin  and  silver 
is  a  legal  tender? 


404  FINANCIAL   AND    BANKING    SITUATION. 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  Does  not  that  fact  leave  tliis  whole  matter  oue  of  argu- 
ment and  conclusion  rather  tlian  distinct  declaration? 

Mr.  Eckels.  Yes;  it  unfortunately  is  left  as  a  matter  of  discretion, 
largely,  Avitli  the  Secretary  of  the  Treasury,  acting  under  the  advice  of 
the  President,  as  to  wliether  he  shall  redeem  the  Government's  obliga- 
tions in  silver  or  gold,  although  the  law  is  on  the  statute  books  that 
the  policy  of  the  Government  is  to  maintain  the  parity  of  the  two 
metals. 

]>Ir.  Fowler.  If  ])erchance  the  Secretary  of  the  Treasury  should  cou- 
strue  his  power  and  the  law  to  mean  silver  as  well  as  gold  and  redeem 
in  silver,  what  effect  Avould  that  have  upon  our  standard  of  value? 

Mr.  Eckels.  It  would  bring  us  to  a  silver  basis. 

Mr.  Fowler.  Y'^ou  say  it  is  purely  a  matter  of  construction  for  the 
Secretary  of  the  Treasury ! 

Mr.  Eckels.  Yes,  as  to  what  the  word  "  coin"  means.  I  myself  do 
not  see  how  a  Secretary  could  construe  it  to  mean  anything  else  than 
gold  if  he  took  into  consideration  that  which  was  the  standard  of  value 
and  the  current  coin  at  the  time  the  obligations  to  be  paid  were  issued; 
still,  it  is  a  matter  of  construction. 

Mr.  Fowler.  Is  it  not  a  fact  that  a  large  portion  of  public  men 
to-day  are  complaining  because  of  the  construction  of  the  ju-esent  Secre- 
tary of  the  Treasury,  and  that  tlie  true  construction  is  silver  as  well  as 
gold? 

]Mr.  Eckels.  Undoubtedly  there  are  a  large  number  of  men  who  take 
the  position  that  the  proper  construction  of  the  work  "  coin  "  is  that  it 
means  silver  as  well  as  gold. 

Mr.  Fowler.  That  it  is  not  only  his  power  but  that  it  is  his  duty  to 
redeem  in  silver? 

Mr.  Eckels.  That  is  the  way  they  hold,  but  no  Secretary  of  the 
Treasury  has  ever  thus  far  held  so. 

Mr.  Fowler.  Is  it  not  your  opinion,  even  though  we  fix  definitely 
the  value  of  our  dollar  so  that  there  could  be  but  one  construction  put 
upon  it,  yet  if  we  allowed  the  demand  obligations  of  the  Government 
to  remain  outstanding,  that  that  would  constantly  jeoi)ardize  the  credit 
of  the  Government  and  the  entire  business  interests  of  the  country  as 
well? 

Mr.  Eckels.  I  have  taken  the  position  all  through  this  discussion 
that  as  long  as  the  demand  obligations  of  the  Government  are  unpaid 
and  uncanceled  wx  are  in  danger.  It  is  not  enough  to  simply  have 
it  reejnphasized  that  the  construction  which  has  been  jdaced  by  the 
various  Secretaries  of  the  Treasury  ui)on  the  word  "coin"  means  gold. 
That  in  itself  does  not  uphold  our  credit.  It  but  assists  to  that  end. 
We  must  have  in  addition  to  that  such  a  system  as  will  enable  the 
Government  to  make  of  the  declaratioi  something  more  than  a  mere 
declaration.  The  Government  must  be  ])ossessed  of  the  means  of  doing 
everytliing  necessary  to  meet  in  an  instant  the  demands  upon  it.  On 
the  other  hand,  the  Government's  credit  is  not  assured  until  it  is  rid  of 
the  causes  which  make  it  a  matter  of  doubt  whether  the  Goveriunent 
can  maintain  itself  in  its  gold  ])ayments.  Itnnist,  in  order  to  i)Ossess 
the  com])l(}test  confideiu-e,  cut  loose  from  those  things  which  the  busi- 
ness public  loolc  ui)on  as  Aveakening  to  its  linancial  stability.  The 
business  public  to  day  so  regards  the  Government's  curioiu*y  issues. 

Mr.  Fowler.  That  is,  we  nuist  have  such  a  condition  as  to  render  it 
practically  impossible  for  the  Government  to  go  to  a  silver  standard? 

Mr.  ICcKELS.  Yes.  As  a  matter  of  fact,  we  certainly  have  been  on  a 
gold  basis  for  over  sixty  years. 


FINANCIAL    AND    BANKING    SITUATION.  405 

Mr.  FowLEE.  Is  it  not  your  opinion  tbat  the  issue  and  redemption 
of  all  paper  currency  should  be  thrown  on  the  banks  of  the  country"? 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  Is  it  not  your  opinion  that  to  permanently  establish  in 
our  foreign  and  domestic  commerce  the  gold  standard  as  our  measure 
of  value,  you  nuist  com])el  all  the  banks  to  currently  redeem  their  obli- 
gations in  gold  coin  or  its  equivalent"^ 

Mr.  Eckels.  1  would  not  permit  any  bank  to  issue  notes  without 
compelling  it  to  redeem  them  in  gold,  and  of  course  if  tlie  banks  redeem 
their  notes  in  gold  it  would  be  of  benetit  to  us  in  our  commercial  rela- 
tions. 

Mr.  Fowler.  Do  you  not  believe  that  the  sections  of  bill  H,  It.  0442 
which  provide  for  funding  the  national  debt  into  U  jier  cent  gold  coin 
bonds,  the  retirement  and  destruction  of  all  the  demand  obligations  of 
the  Government,  and  the  redemption  of  all  our  paper  currency  by  the 
banks  in  gold  coin  or  its  equivalent  would  settle  our  standard  of  value, 
place  the  credit  of  the  nation  beyond  all  question,  and  prove  a  source 
of  the  greatest  possible  stability  to  our  business  interests"? 

Mr.  Eckels.  Well,  that  is  a  very  sweeping  sort  of  question. 

Mr.  Fowler.  I  will  read  it  again. 

Mr.  Eckels.  I  get  the  full  force  of  it. 

Mr,  Fowler.  It  only  covers  the  points  I  have  been  over. 

Mr,  Eckels.  I  have  no  doubt,  Mr.  Fowler,  that  the  funding  of  our 
present  bonds  into  2  per  cent  gold  bonds  would  establish  beyond  ques- 
tion that  the  policy  of  this  Government  was  to  maintain  the  gold 
standard  of  value,  and  I  have  no  doubt  that  the  funding  of  legal  tenders 
into  gold  bonds  would  do  the  same  thing;  that  it  would  be  a  practical 
measure  of  relief  to  the  Government  in  the  end. 

The  Chairman.  Do  you  include  in  that  the  Treasury  notes  and  silver 
certificates"? 

Mr.  Eckels.  Yes;  all  the  Treasury  ])aper.  I  mean  what  are  known 
as  Treasury  notes;  I  am  not  speaking  of  the  silver  certificates.  I 
include  the  Sherman  notes. 

Mr.  Brosius.  Sherman  notes  and  greenbacks'? 

Mr.  Eckels.  Yes.  If  the  United  States  went  to  the  extent  of  fund- 
ing its  coin  bonds  and  funding  its  legal-tender  paper,  no  one  would 
ever  again  doubt  but  that  this  was  a  Government  which  believed  very 
emphatically  in  the  maintenance  of  the  gold  standard  of  value  and  in 
gold  payment  of  all  obligations.  It  is  an  essential  thing  for  the  main- 
tenance of  national  and  individual  credit  to  have  it  known  beyond  ques- 
tion that  it  is  proposed  to  maintain  at  any  cost  gold  ])ayments  for  all 
our  obligations.  This  nation  can  not  afford  to  take  advantage  oi  any 
technicalities  in  the  definition  attaching  to  a  word,  when  it  comes  to 
meeting  its  debts. 

BANKS   COULD   MAINTAIN   GOLD   PAYMENTS. 

Mr.  Fowler.  Have  you  any  doubt  whatever  in  your  mind  with 
regard  to  the  ability  of  the  banks  of  the  United  States  to  maintain 
gold  redemption  of  the  requisite  amount  of  paper  currency  to  properly 
conduct  the  business  of  this  country? 

Mr.  Eckels.  No.  Whenever  the  banks  have  undertaken  to  do  it, 
at  times  when  the  Government  was  not  issuing  Treasury  paper,  they 
have  been  able  to  maintain  gold  payments  and  furnish  all  the  gold 
necessary  for  the  business  of  the  country. 

Mr.  Fowler.  Is  it  not  your  opinion  that  a  credit  currency  based 
upon  assets  is  the  only  truly  scientific  form  of  paper  money!    . 


406  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  I  have  said  repeatedly  I  tbought  it  was  theoretically 
the  correct  method  of  issuin<j^  notes. 

Mr.  Fowler.  Do  you  not  think  under  i)roi)er  supervisiou  such  credit 
currency  of  the  banks  miglit  be  safelj^  equal  to  the  capital  of  the  banks? 

Mr.  Hill.  Under  general  law? 

Mr.  Fowler.  Yes.  Do  you  not  think  under  proper  supervision  such 
credit  currency  of  the  banks  might  be  safely  equal  to  the  capital  of  the 
banks? 

Mr.  Eckels.  Fnder  proper  sui)eryision  and  witli  all  necessary  safe- 
guards, but  it  would  recjuire  a  good  many  safeguards  and  pretty  careful 
sui)ervision.  It  is  certainly  somethiug  that  could  not  be  done  except 
gradually. 

]\Ir.  Fowler.  I  am  coming  to  that.  Do  you  not  think  such  a  system 
ought  in  time  to  succeed  our  present  secured  system? 

Mr.  Eckels.  Yes;  I  think  in  time  it  ought. 

Mr.  Spalding.  How  long  a  time? 

Mr.  Fowler.  Just  make  a  note  of  that  question,  and  ask  it  when  I 
get  through. 

Is  it  not  your  opinion  that  the  transition  from  the  one  system  to  the 
other  ought  to  be  gradual,  so  as  not  to  disturb  business  conditions  in 
the  slightest  degree? 

Mr.  Eckels.  Yes. 

notes   ISSUED   INDER   G0\T5RNMENT   SUPERVISION. 

Mr.  Fowler.  Is  it  not  your  opinion,  considering  our  ])resent  condi- 
tion, that  the  right  of  the  bank  to  issue  credit  currency  ought  to  be 
left  under  the  supervision  of  the  Government  officials? 

Mr.  Eckels.  I  believe  all  notes  which  circulate  as  money  from  banks 
ought  to  be  issued  under  governmental  supervision,  for  the  reason  that 
because  of  such  known  supervision  they  will  best  be  accepted  by  the 
general  public.  Then,  too,  they  will  have  back  of  them  the  quality  of 
uniformity,  and  also  there  will  be  vested  in  one  authority  the  right  to 
take  the  necessary  measures  in  order  to  have  the  banks  maintain  the 
credit  of  the  currency  so  issued. 

tax  on  circulation. 

]\Ir.  Fowler.  Do  you  not  think  it  would  be  advisable  to  divide  the 
total  amount  of  ultimate  circulation  into  four  or  five  issues  and  impose 
an  increasing  tax  u])on  the  respective  issues  in  order  to  insure  an 
automatic  regulation  ? 

Mr.  Eckels.  Bank  issues  have  sometimes  been  regulated  by  a  gradu- 
ated tax  and  they  have  been  successful  to  a  degree.  In  Scotland,  where 
probably  as  good  bank  paper  as  any  is  issued,  no  such  means  of  regida- 
tion  is  undertaken. 

The  Chairman.  It  prevails  nowhere  excei)t  in  Germany. 

Mr.  Biiosius.  Germany  is  the  only  country. 

Mr.  Fowler.  There  is  no  graduated  tax  in  any  country.  There  is 
a  tax  of  5  ])er  cent  when  the  banks  of  Germany  exceed  the  amount 
granted  by  the  Government  and  do  not  i)rovide  the  reserve  which  the 
law  re(i aires. 

Mr.  Eckels.  Germany  has  a  graduated  tax  aftm-  certain 

current  redemption. 

Mr.  Fowler,  It  is  a  straights  per  cent.  In  Canada  the  same  effect 
is  produced  by  penalties  imposed  for  degrees  of  excesses.     Do  you  not 


FINANCIAL    AND    BANKING    SITUATION.  407 

consider  that  tlie  esseutial  counterpart  of  a  system  of  credit  currency- 
is  current  redemption? 

Mr,  Eckels.  Yes ;  it  is  absolutely  essential  to  maintain  current  re- 
demptions to  liave  the  currency  issued  safe  and  sound  aud  of  any  bene- 
fit to  the  people. 

Mr.  Fowler.  The  essential  counterpart '? 

Mr.  Eckels.  Yes,  to  maintain  the  credit  of  their  currency. 

Mr.  Cox.  It  would  not  go  without  that? 

Mr.  Eckels.  No. 

REDEMPTION   DISTRICTS. 

Mr.  Fowler.  Do  you  not  think,  therefore,  that  to  facilitate  such 
redemption  the  United  States  should  be  divided  into  clearing-house 
districts  and  each  bank  issuing  notes  should  be  obliged  to  redeem  its 
notes  at  some  one  of  those  clearing  houses  as  well  as  over  its  own 
counters  ? 

Mr.  Eckels.  I  can  see  no  objection,  if  there  is  to  be  credit  currency 
issued,  to  the  creation  of  redemption  districts,  although  when  it  was 
attempted  to  have  various  redemption  districts  under  the  national  bank 
system  it  was  not  found  to  operate  as  successfully  as  sole  redemption 
at  Washington.  It  is  contended  by  those  who  advocate  redemption 
districts  that  it  makes  more  rapid  redemptions  by  having  the  country 
divided  up  into  districts  and  tends  to  send  back  to  the  issuing  banks 
any  unnecessary  amount  of  currency. 

Mr.  Fowler.  As  a  matter  of  fact,  the  present  currency  of  this 
country  was  not  such  as  to  render  its  current  redemption  essential  to 
prove  its  goodness? 

Mr.  Eckels.  Oh,  no;  there  is  that  difference  between  secured  and 
credit  currency,  unless  back  of  the  credit  currency  is  the  Government's 
guaranty. 

Mr.  Fowler.  The  ultimate  redemption? 

Mr.  EcKLES.  Yes. 

Mr.  Fowler.  But  is  there  not  a  distinction  in  that;  is  it  not  true, 
as  experience  has  shown  in  the  past,  that  redemption  should  be  made 
convenient? 

Mr.  Eckels.  Undoubtedly  there  ought  to  be  every  facility  for  con- 
venient and  quick  redemption.  Every  bank  ought  not  only  to  redeem 
at  these  centers,  but  redeem  at  its  own  counters  when  called  for. 

REPEAL   of    state   BANK   TAX. 

Mr.  Fowler.  Do  you  not  think  that  to  secure  uniformity  our  bank 
currency  should  all  be  issued  under  United  States  laws  and  not  under 
State  laws,  and  therefore  are  you  not  opposed  to  the  repeal  of  the  10 
per  cent  tax  on  State  bank  circulation? 

Mr.  Eckels.  I  liave  stated  once  or  twice  that  there  ought  to  he  uni- 
formity in  all  currency  aud  it  ought  all  to  be  issued  under  govern- 
mental supervision. 

Mr.  Fowler.  Does  not  the  other  necessarily  follow? 

Mr.  Eckels.  No;  not  necessarily.  The  benefits  which  the  people 
who  urge  the  repeal  of  the  10  per  cent  tax  would  receive  from  tiie 
repeal  of  it,  it  seems  to  me,  are  very  much  exaggerated.  The  theory 
on  which  the  10  per  cent  tax  law  was  enacted  is  all  wrong.  It  is  a  law 
which  makes  a  perversion  of  tlie  taxing  power  of  the  Government. 

Mr.  Fowler.  In  principle? 

Mr.  Eckels.  Yes;  but  I  believe  the  courts  have  decided  it  is  all 
right,  and  their  findings  govern. 


408  FINANCIAL   AND    BANKING    SITUATION. 


CREDIT    CURRENf'Y. 

Mr.  Fowler.  Do  you  not  think  that  the  sections  of  bill  II.  E.  0442, 
which  provide  for  a  credit  currency  under  United  States  Government 
supervision  and  divided  into  five  distinct  issues,  with  a  tax  of  1,  2,  4,  G, 
and  8  per  cent,  respectively,  currently  redeemed  over  the  counter  of  the 
bank  of  issue  and  also  at  some  clearing  house,  would,  if  enacted  into 
law,  in  connection  with  the  preceding  sections  of  tliis  bill,  give  to  the 
country  a  sound  and  truly  scientific  currencj',  and  that  it  would  so 
gradually  transi)lant  our  i)resent  system  as  only  to  produce  the  most 
salutaiy  efiect  upon  the  business  interests  of  the  country  ? 

Mr.  Ec'ki:ls.  I  can  not  answer  a  question  like  that.  You  have 
embodied  too  nuich  in  it. 

Mr.  Fowler.  That  is  what  we  have  been  over. 

Mr.  Eckels.  It  is  a  nnitter  of  speculation  whether  or  not  the  banks 
would  accept  it.  I  have  no  doubt  that,  under  the  provisions  of  any  bill, 
a  bank-note  currency  issued  against  credits,  with  proper  safeguards 
thrown  around  it,  if  entered  upon  gradually,  would  prove  acceptable  to 
the  i)e()ple.  It  would  follow,  through  the  manner  in  which  it  was  main- 
tained, that  in  time  it  would  be  accei)ted  as  a  proper  method  of  issuing 
all  bank-note  currency,  but  it  would  be  a  matter  which  would  ha\e  to 
be  entered  upon  very  gradually,  and  there  would  have  to  be  an  unusual 
number  of  safeguards  thrown  about  it.  The  difficulties  to  be  encoun- 
tered at  the  outset  would  arise  from  the  fact  that  it  would  be  a  substi- 
tution with  tlie  people  of  bank  notes  which  theretofore  had  been  entirely 
secured  with  bank  notes  which  are  so  dependent  upon  the  manner  in 
which  the  banks  are  conducted  and  the  character  of  the  assets  which 
are  in  those  banks.  Of  course  this  difliculty  would  be  obviated  if  back 
of  all  these  notes  was  the  Government  guaranty  to  make  the  ultimate 
redemption  of  them  all. 

Mr.  Fowler.  Admitting  that  is  so,  the  creation  of  the  fund  to  which 
I  am  coming 

Mr.  Eckels  (concinuing).  I  do  not  believe,  as  a  matter  of  fact,  there 
would  be  any  more  banlf  failures  from  this  system  of  note  issue  against 
credits  than  there  would  have  been  in  the  i)ast  if  the  same  kind  of 
management  is  had  by  the  banks. 

Mr.  Fowler.  That  would  result  from  the  same  kind  of  supervision? 

Mr.  Eckels.  Yes.  However,  there  would  have  to  be  made  a  very 
liberal  allowance  in  the  way  of  the  issue  attendant  upon  a  departure 
ot  this  kind,  from  the  tendency  of  the  people  to  feel  not  exactly  as  safe 
with  a  credit  note  as  with  a  bond- secured  note. 

SAFETY-PUNU    PROVISIONS. 

Ml'.  Fowler.  Do  you  believe,  from  your  knowledge  of  the  subject, 
that  the  tax  imposed  by  this  bill  would  produce  a  5  per  cent  safety 
fund? 

Mr.  Eckels.  That  is  a  matter  of  mathematics.  It  would  depend 
upon  how  general  a  credit  was  ])laced  by  the  note  holders  in  the  notes 
of  these  banks. 

Mr.  FoWLiOR.  Well,  if  it  produced  a  safety  fund  of  ;")  per  cent,  would 
that  be  ample  in  your  judgment  to  redeem  the  notes  of  failing  banks? 

Mr.  Eckels.  1  think  so. 

Mr.  Fowler.  In  your  judgment,  this  5  per  cent  would  be  more  than 
ample  to  redeem  all  the  notes  of  failing  banks,  would  it  not? 


FINANCIAL   AND    BANKING    SITUATION.  409 

Mr.  Eckels.  Unquestionably,  figuring  upon  tlie  sauie  basis 

Mr.  Fowler.  Basing  it  upon  your  judgment  of  tlie  past? 

Mr.  Eckels.  Yes;  basing  it  on  tlie  past,  Wlietlier  or  not  the  tax 
provided  in  the  bill  would  produce  that  amount  is  a  question  of  math- 
ematics. 

Mr.  Fowler.  Do  you  not  think  that  all  the  banks  of  the  United 
States,  both  State  and  national,  would  organize  under  this  bill,  having 
as  they  do  the  power  to  take  out  currency  to  the  par  of  the  bonds  held 
by  them,  and  that  there  is  only  a  tax  of  one-fourth  of  1  ])er  cent 
imj)Oscd  upon  the  bonds  which  bear  2  per  cent,  leaving  a  net  1^  per 
cent  to  the  bank  and  giving  to  the  bank  at  the  same  time  the  right  to 
issue  credit  currency! 

Mr.  Eckels.  I  am  sure  I  could  not  say  what  they  would  do. 

Mr.  Fowler.  What  has  been  the  experience  of  the  past? 

Mr.  Eckels.  It  is  certain  they  will  do  the  thing  which  seems  to 
them,  everything  considered,  will  bring  to  them  the  greatest  profi.t. 

Mr.  Fowler.  Has  it  not  ])roved  true  in  the  past,  whenever  a  bank 
cau  make  more  than  Ih  per  cent  net,  it  has  taken  out  circulation? 

Mr.  Eckels.  Yes. 

Mr.  Fowler.  Therefore  you  can  infer  that  where  they  made  one 
and  three-quarters  per  cent  profit  they  would  naturally  be  glad  to  take 
out  circulation  ? 

THE   BALTIMORE   PLAN, 

Mr.  Eckels.  Yes;  but  they  would  not  decide  this  thing  on  one  ques- 
tion. They  would  not  decide  it  wholly  on  circulation,  but  they  would 
decide  it  upon  other  matters  which  enter  into  consideration  as  to  what 
would  be  the  best  thing  for  them.  They  would  consider  how  their 
dei)ositors  would  look  at  it  and  how  it  would  affect  those  features  of  the 
banking  business  which  to-day  are  a  great  source  of  profit  to  them.  It 
would  depend  not  on  one  circumstance,  but  upon  a  good  many.  When 
the  plan  known  as  the  Baltimore  plan  was  presented  to  the  American 
Bankers'  Association,  which  met  in  Baltimore  two  or  three  years  ago, 
it  was  adopted  almost  without  a  dissenting  voice,  and  it  was  accepted 
by  the  newspapers  and  approved  generally  by  them  throughout  the 
country.  Yet  when  that  plan  was  embodied  in  a  bill  and  presented  to 
Congress  it  was  abandoned  almost  as  unanimously. 

Mr.  Cox.  And  there  was  not  a  member  of  the  committee  who  sup- 
ported it. 

Mr.  Fowler.  There  was  no  provision  made  there  for  current  redemp- 
tion, which  was  the  essential 

Mr.  Eckels.  They  apparently  left  the  principle.  The  question  of 
details  was  not  considered. 

Mr.  Fowler.  The  principle  is  unsound  without  the  counterpart, 
which  is  current  redemption  in  gold  coin.  I  should  have  gone  a  good 
way  from  it,  as  far  as  I  could  fiom  it,  without  that  policy. 

Mr.  Eckels.  I  have  always  maintained  in  discussing  the  question  of 
bank  notes,  that  the  test  was  not  only  the  promise  of  the  bank  to  re- 
deem in  gold,  but  its  ability  to  redeem  and  to  do  so  on  demand  in  what- 
ever quantities  asked  for. 

Mr.  Fowler.  Well,  the  national  banks  in  the  past,  as  I  understand 
you,  have  seized  upon  the  opportunity  of  taking  out  circulation  when- 
ever it  paid  them  above  li  per  cent;  that  is  true? 

Mr.  Eckels.  Yes,  they  have  taken  out  circulation  when  there  has 
been  a  margin  of  profit  in  so  doing. 


410  FINANCIAL    AND    BANKING    SITUATION. 

CIKCl'LATION    ISSl'ED    TO    PAR    VALUE    OF    BONDS. 

Mr.  Fowler.  Would  it  not  be  a  great  advantage  not  to  tie  up  a  sin- 
gle dollar  of  the  capital  of  the  bank  and  take  out  tlie  same  amount  of 
circulation  that  the  banks  have  of  bonds?  Would  it  not  be  an  advan- 
tage especially  to  the  Western  banks,  where  the  rates  are  high? 

]Mr.  Eckels.  There  certainly  would  be  more  profit  to  the  bank  in 
issuing  uj)  to  the  ])ar  of  the  bonds  and  in  addition  having  the  riglit  to 
issue  its  credit  currency.  On  the  other  hand  you  have  your  banks 
surrendering  the  bonds  bearing  4  or  a  or  G  per  cent  for  a  bond  which 
only  draws  U  i)er  cent. 

Mr.  Fowler.  But  they  are  paid  the  market  price;  therefore  they 
lose  nothing. 

]\rr.  Eckels.  Oh,  yes;  they  do  not  lose  anything  except  in  the  less- 
ening of  future  interest. 

Mr.  Fowler.  But  they  gain  in  the  lessening  of  future  interest 
because  now  they  tie  up  the  difl'erence  between  90  cents  and  the  pre- 
mium on  the  bonds;  besides,  they  are  only  realizing  one  per  cent,  and 
under  this  bill  they  are  getting  one  and  three-quarters  per  cent.  Is 
not  that  true? 

Mr.  Eckels.  Well,  that  is  also  a  matter  of  mathematics,  whether 
they  would  gain  or  lose. 

Mr.  Fowler.  But  as  a  matter  of  fact,  is  it  not  true  to-day  that  when 
you  take  into  consideration  the  dilfereuce  between  90  cents  and  the 
])remium  on  the  bonds,  a  great  portion  of  the  United  States  can  not  issue 
those  notes  at  all,  on  account  of  the  rate  of  interest  in  their  respective 
localities? 

Mr.  Eckels.  Well,  they  do  not. 

Mr.  Fowler.  Now,  under  this  bill  they  would  not  tie  up  a  single  dol- 
lar of  their  capital  and  they  would  have  a  net  If  per  cent  on  the  notes 
taken  out  against  the  bonds. 

Mr.  Eckels.  Yes;  I  say  that  is  a  matter  of  mathematics ;  you  might 
raise  the  price  of  bonds  in  tlie  market 

]\[r.  Fowler.  Two  per  cent  bonds? 

Mr.  Eckels.  You  might  by  permitting  a  larger  issue  raise  the  market 
price 

]\Ir.  Fowler.  Is  there  any  ])robability  of  2  per  cent  bonds  rising  so 
much  above  par  as  to  ])ractically  reduce  the  rate  of  interest  and  there- 
fore make  the  jirofit  much  less  than  If  per  cent. 

Mr.  Eckels.  Well,  1  should  hardly  think  so,  but  there  might  be. 

Mr.  Cox.  In  order  to  understand  that 

The  Chairman.  Mr.  Fowler  has  the  iloqr. 

Mr.  Fowler.  I  Avill  yield  to  Mr.  Cox  for  a  question. 

Mr.  Cox.  As  I  understand,  the  proi)osition  that  is  embodied  in  that 
idea,  and  let  me  see  if  I  am  correct,  is  that  in  the  redemption  of  the 
outstanding  bonds  with  those  U  per  cent  bonds  you  propose  to  pay  the 
])reniiuni  on  the  old  bonds  and  put  that  into  new  bonds,  convert  them 
into  new  bonds? 

Mr.  Fowler.  Yes,  sir. 

Mr.  Cox.  I  wish  to  understand  that,  and  tliat  is  all. 

Mr.  Fowler.  The  market  price  of  to-day,  or  at  the  time  the  bill  is 
passed,  being  taken  as  a  basis  and  continued  during  the  funding  of  the 
debt,  so  that  there  can  be  no  movement  in  the  i>riceof  the  bonds  to  the 
injury  of  the  (rovernment,  and  as  a,  check  against  any  such  bull  move- 
ment by  speculation,  the  Government  itself  has  a  large  quantity  of  2 


FINANCIAL    AND    BANKING    SITUATION.  411 

per  cent  bonds  for  disposition  to  the  banks  in  the  redemj)tion  of  the 
demand  obligations  of  the  Government. 

Do  you  not  think  that  interests  so  vast  and  important  to  the  people 
as  our  finances  and  currency  are  should  not  be  left,  in  carrying  out 
these  financial  and  currency  reforms,  to  the  caprice  of  politics,  but 
rather  separated  from  them"? 

Mr.  Eckels.  I  think  everybody  would  agree,  Mr.  Fowler,  that  these 
things  ought  not  to  be  left  to  the  caprice  of  politics,  but  then  would 
come  in  the  question  of  what  constitutes  politics. 

Mr.  Fowler.  Well,  I  am  simply  asking  about  the  principle,  now. 

Mr.  Eckels.  I  do  not  think  if  you  go  to  anyone  and  say,  "Ought 
this  monetary  principle  to  be  decided  as  a  political  question,"  but  he 
would  answer,  "No;"  but  he  would  also  couple  with  the  answer  what 
he  thought  constituted  politics. 

A   CONSULTING    BOARD. 

Mr.  Fowler.  Do  you  not  think,  therefore,  that  the  supervision  of 
these  great  interests  had  much  better  be  left  to  a  consulting  board 
whose  term  of  office  will  be  such  as  to  insure  a  continuous  body  than 
to  a  single  individual  whose  ideas  might  possibly  be  at  variance  with 
the  financial  policy  or  be  prejudiced  in  ftivor  of  some  section,  or  be 
hopelessly  ignorant  of  the  subject  when  he  came  into  office? 

Mr.  Eckels.  I  think  it  is  a  great  deal  more  essential  to  get  a  sound 
scientific  bill  than  it  is  to  establish  a  board.  I  think  if  you  have  a  bill 
which  in  and  of  itself  is  good  and  whose  provisions  are  not  complex, 
that  it  would  not  be  very  hard,  whether  it  was  by  one,  two,  or  three 
persons,  to  enforce  the  provisions  of  that  bill.  The  whole  thing  turns 
upon  the  character  of  the  act.  I  do  not  see  any  objection  to  having  a 
consulting  board,  if  the  officer  who  is  charged  in  the  first  instance  with 
the  duty  of  carrying  out  the  act  has  only  to  consult  with  the  board.  I 
am  not  a  great  believer  in  divided  responsibility. 

Mr.  Fowler.  It  would  not  be  any  more  divided  than  in  the  case  of 
the  President  and  his  Cabinet,  would  it? 

Mr.  Eckels.  Except  that  the  President  has  the  decisive  voice  in  the 
matter,  and  under  your  plan  no  one  man  has.  As  I  say,  if  you  have  a 
consulting  board,  with  somebody  at  the  head  of  it  who  as  the  last  resort 
has  the  decisive  act,  there  could  not  be  any  objection  to  it;  but  where 
you  divide  the  responsibility  among  a  number  of  people,  each  having 
equal  power,  you  are  liable  to  not  work  out  as  good  results  as  where 
you  have  simply  a  consulting  board  instead  of  a  single  authoritative 
head. 

Mr.  Fowler.  Do  you  not  think  as  a  matter  of  fact  if  it  should  turn 
out  some  such  bill  was  adopted,  all  the  banks  of  this  country,  now 
amounting  to  about  10,000,  iState  and  national,  representing  approxi- 
mately about  a  billion  dollars  of  capital  and  about  five  billion  dollars 
of  deposits,  would  be  far  better  under  the  supervision,  when  a  system 
of  branch  banks  is  included,  as  you  recommend,  of  three  men,  than  under 
the  supervision  of  one  man  who  may  leave  his  office  the  next  day  after 
the  Administration  comes  in — we  hope  you  will  not — or  may  die  in  the 
midst  of  a  bank  panic  or  in  any  great  crisis,  but  leaving  the  office  i:)rac- 
tically  without  a  man  efficient  and  able  to  conduct  if? 

Mr.  Eckels.  Well,  it  would  depend  entirely  upon  the  character  of 
the  act  under  which  these  men  were  operating.  It  is  not  so  difficult  to 
administer  an  act  if  the  act  is  not  too  complex,  and,  I  take  it,  when  you 
get  a  bill  which  you  will  hope  to  get,  that  is  as  near  perfection  as  possible, 


412  FINANCIAL    AND    BANKING    SITUATION. 

it  will  not  be  a  difficult  bill  to  adiniiiistor,  and,  therefore,  one  man 
given  tlie  power,  with  the  right  to  call  iu  others  in  consultation  who  are 
suggested  for  that  |)ur])ose,  would  do,  I  believe,  a  great  deal  better  than 
seven  men,  all  being  given  equal  i)ower, 

Mr.  Fowler.  There  are  three  here  and  they  do  not  have  equal  power. 

Mr,  Eckels.  Well,  whatever  the  number,  tliey  are  given  equal 
power,  and  thereby  is  established  a  divided  responsibility.  1  do  not 
believe  as  much  has  been  accomplished  by  permanent  commissions  in  the 
conduct  of  bureaus  as  has  been  accomplished  by  bureaus  with  one 
person  in  charge. 

INSURING  DEPOSITORS  AGAINST  LOSS. 

Mr.  Fowler.  Inasmuch  as  you  have  stated  that  in  your  judgment 
the  supervisioji  of  the  banks  should  be  conti-olled  by  the  (Jovernment, 
I  take  it  you  approve  of  paying  to  the  Government  a  tax  for  the  redemp- 
tion of  notes  in  case  of  banks  failing? 

]\Ir.  Eckels.  Yes. 

Mr.  FowLi'^R.  If  the  actuary  of  the  Treasury  can  inform  you,  after 
an  examination  of  the  records,  that  the  national  banks  since  1S(!3,  by 
paying  one  twelfth  of  1  per  cent  per  annum  upon  the  deposits  into  an 
insurance  fund,  could  have  protected  all  depositors,  do  you  not  think  it 
would  be  advisable  to  have  the  national  banks  of  the  United  States 
insure  their  depositors  against  loss? 

Mr.  Eckels.  I  do  not  believe  it  is  any  business  of  the  Government  to 
guarantee  bank  dei)0sits. 

Mr.  l^'owLER.  1  do  not  say  the  Government;  but  I  say, do  you  think 
it  would  be  a  wise  thing  to  do  ? 

Mr.  Eckels.  That  is  a  business  proposition  which  the  imlividual 
banks  should  determine,  and  I  would  not  uudertake  to  express  an 
opinion  upon  it. 

Mr.  Fowler.  In  your  judgment,  what  do  you  think? 

Mv.  Eckels.  J  do  not  think  that  I  care  to  answer  the  question. 
There  are  a  nund)er  of  institutions  which  have  been  created  for  the  pur- 
pose of  insuring  county  treasurers'  funds  and  all  that  sort  of  thing.  It 
is  a  business  matter,  and  it  is  not  a  matter  with  which  the  Government 
ought  to  deal. 

JNIr.  Fowler.  Let  me  ask  you  this,  then.  If  the  fund  of  5  per  cent, 
which  you  said  in  your  judgment  was  more  than  am])le  to  redeem  the 
notes  of  the  banks  failing,  was  paid  into  the  Government,  and  if  the 
banks  of  the  United  States  actually  did  insure  the  depositors  against 
loss  by  paying  a  necessary  amount  to  an  insurance  company,  do  you 
not  believe  that  bank  ])anics  would  be  ])iactically  ended? 

j\fr.  Eckels.  No;  because  you  would  have  to  comi)letely  reform  a 
large  portion  of  mankind.  A'ou  can  have  all  the  ])recautionary  meas- 
ures you  may  desire,  but  fear  at  times  will  manifest  itself  among  tlie 
peoi)le  as  to  tlie  safety  of  tlieir  property.  You  (!an  not  do  everything 
by  law,  and  you  ought  not  to  attempt  it. 

bank  panics  IN  OTHER  COUNTRIES. 

Mr.  Fowler.  Do  you  know  how  long  anv  bank  panic  has  lasted  in 
Scotland? 

Mr.  Eckels.  They  are  free  from  panics. 

Mr.  Fowler.  They  never  last  to  exceed  three  or  four  days,  or  a  week 
at  the  outside? 


FINANCIAL    AND    BANKING    SITUATION.  413 

Mr.  Eckels.  No;  they  are  very  short.  Tlie  people  liiive  the  utmost 
conlideii<!e  in  their  baukers,  aud  they  are  all  educated  up  to  the  poiut 
of  usiug  bauks. 

Mr.  Fowler.  And  a  credit  system  of  notes'? 

Mr.  Eckels.  Yes;  but  it  is  a  matter  of  education. 

Mr.  Fowler.  Do  you  know  whether  or  not  they  are  in  the  habit  of 
having  bank  panics  in  Canada  as  they  have  them  here  in  the  United 
States '! 

Mr.  Eckels.  They  have  not  so  far  under  their  present  system,  but 
they  have  not  had  the  same  things  to  contend  with.  They  have  not 
passed  through  the  same  business  conditions  we  have,  and  they  have 
kept  business  questions  sei:)arated  from  political  ones. 

Mr.  Fowler.  Have  they  not  had  booms  at  Toronto  aud  Victoria  the 
same  as  we  have  had  in  the  United  States! 

Mr.  Eckels.  But  they  have  not  had  half  the  bad  financial  laws  nor 
half  the  speculation  we  have,  nor  half  the  overtrading,  nor  half  the 
undue  extension  of  credits. 

Mr.  Fowler.  It  is  mostly  in  the  bad  banking  laws? 

Mr.  Eckels.  Much  of  it  here  is  chargeable  to  bad  financial  laws, 
but  not  all.  The  bad  financial  laws  we  have  had  have  aggravated  all 
these  things,  and  at  least  in  one  instance  brought  them  to  a  head. 
The  silver-purchasing  act  of  1890  centered  the  many  causes  which 
resulted  in  the  panic  of  1893. 

Mr.  Fowler.  Do  you  know  what  the  experience  of  Germany  has 
been  since  1875,  when  they  established  their  present  banking  system 
and  gave  to  the  bauks  practically  a  free  banking  system  ? 

Mr.  Eckels.  They  have  kept  along  very  successfully. 

Mr.  Fowler.  There  have  been  no  bank  failures  at  all? 

Mr.  Eckels.  No. 

Mr.  Fowler.  In  twenty-two  years? 

Mr.  Eckels.  But  there  would  have  been  if  they  had  had  the  same 
conditions  which  we  have  here.  You  must  deal  with  our  people  and 
take  our  conditions,  and  take  our  habits  and  education  in  these  things, 
and  tlie  law  which  surrounds  them,  and  the  tendency  of  overdealing 
and  overtrading,  and  all  that  sort  of  thing. 

Mr.  Fowler.  As  a  matter  of  fact,  it  is  true  that  all  over  the  world — 
go  back  and  take  in  Scotland  for  two  hundred  years  and  the  banks 
to-day  which  exist  upon  a  credit  system — there  have  been  less,  and 
very  much  less,  too,  of  the  ups  and  downs  of  banking  interests  than 
we  have  had  in  this  country? 

Mr.  Eckels.  I  will  answer  that  question  as  I  answered  it  the  other 
day.  I  then  stated  that  when  a  large  number  of  banks  failed  in  England 
which  operated  under  the  same  system  as  Scotland,  it  was  found  that 
no  banks  failed  in  Scotland.  A  distinguished  economist,  on  being  asked 
what  was  the  explanation  for  such  fact,  replied  that  the  explanation 
was  simply  that  the  Scotch  were  better  bankers  than  the  English. 
Both  were  issuing  credit  currency,  but  the  Scotch  banker  was  a  banker 
always  banking  upon  banking  principle;  while  the  English  banker,  at 
the  time  when  these  failures  occurred,  did  the  thing  which  could  not 
help  resulting  in  the  destruction  of  the  system.  It  was  not  the  system, 
but  the  way  in  which  the  system  was  carried  out. 

Mr.  Fowler.  Is  it  not  true  that  since  1839,  when  that  panic  occurred 
which  led  to  the  English  bank  act  of  1814,  the  English  bankers  have 
gone  on  with  a  very  much  greater  degree  of  safety  than  the  banking 
system  in  this  country  ? 

Mr.  Eckels.  Yes. 


414  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Fowler.  Andtbey  tbere  have  the  pri  vile^esof  a  credit  currency? 

Mr.  Eckels.  They  liave  not  exercised  the  i)rivilege — 

Mr.  Fowler.  But  to  the  extent  of  their  needs  they  have? 

Mr.  li^CKELS.  lUit  that  extent  has  not  been  very  great,  however. 
They  have  been  better  bankers  since  their  experience  at  the  time  of  all 
these  failures. 

Mr.  Fowler.  Might  it  have  been  due  not  so  much  to  the  fact  of  their 
being  better  bankers? 

Mr.  Eckels.  I  do  not  think  so.  I  do  not  think,  Mr.  Fowler,  the  mere 
fact  that  there  has  been  permitted  in  certain  countriesoa  credit  cur- 
rency has  prevented  bank  failures.  Bank  failures  have  been  avoided 
because  of  the  character  of  the  men  Avho  have  handled  the  banks,  and 
who  have  carried  out  the  provisions  of  the  law. 

credit   currency   IN   THE   UNITED   STATES. 

Mr.  Fowler.  Coming  back  to  our  own  country,  is  it  not  your  judg- 
ment, from  your  knowledge  of  our  country,  that  the  thing  to  do  that  is 
necessary  to  insure  the  safety  of  our  institutions  as  they  exist  to-day  is 
to  give  to  the  newer  and  more  undeveloped  portions  of  the  country 
the  facilities  of  a  credit  currency? 

Mr.  Eckels.  Those  portions  of  the  country  of  which  you  speak  ought 
to  be  given  the  benefit  of  every  facility  that  constitutionally  can  be 
given  them  in  the  matter  of  banking  privileges,  whether  it  is  in  issuing 
currency  or  in  making  exchanges.  Despite  all  these  things,  how'ever, 
you  are  never  going  to  be  able,  no  matter  what  laws  you  pass,  to  put 
those  sections  of  the  country  in  the  condition  that  the  older  sections  of 
the  country  are  until  they  have  passed  through  all  the  things  necessary 
to  accumulation  and  growth.  There  is  no  way  that  1  know  of  by  which 
through  bare  enactment  of  law  they  can  be  made  prosperous. 

Islr.  Fowler.  Do  you  not  think  that  the  credit  system  as  it  existed 
in  New  England  from  1825  to  1860,  and  the  credit  system  established 
in  Scotland,  was  an  immense  source  of  profit  and  important  to  the 
development  of  those  regions  at  the  time  when  they  had  no  wealth  in 
the  form  of  deposits  to  use? 

Mr.  Eckels.  Yes,  undoubtedly ;  but  for  years  and  years  before  that 
tlie  States  of  !New  Fnglaud  and  Scotland  had  to  pass  through  all  the 
various  eras  of  business  de])ressions  and  losses  and  all  that,  and  so  in 
this  country  you  can  not,  by  any  law  that  T  know  of — and  it  must  be 
ecfual,  necessary,  and  Just  in  its  operations — do  more  thangixe  the  peo- 
I)le  an  o})i)()rtui)ity.  They  must  depend  upon  themselves  in  the  greatest 
measure  if  benefit  is  to  accrue  to  them. 

Mr.  Fowler.  I  understand  you  to  maintain  in  your  report  that 
greater  strictness  should  be  demanded  on  the  part  of  directors  in  the 
administration  of  national  banks,  do  you  not? 

Mr.  'Eckels.  Yes. 

CREDIT    OF    THE    GOVERNMENT. 

Mr.  Fowler.  Is  it  not  your  opinion,  too,  that  the  United  States 
Governnx'nt  should  have  all  the  means  witliin  its  power  of  providing 
against  any  deficit  by  issuing  short-time  certificates? 

Mr.  Ec KELS.  Yes.  The  Secretary  of  the  Treasury  ought  to  be  clothed 
with  all  tlie  power  necessary  to  meet  in  any  emergency  the  obligations 
of  the  Government. 


FINANCIAL    AND    BANKING    SITUATION.  415 

The  Chairman,  Is  not  the  direct  guaranty  of  the  dual  payment  of 
all  currency  notes  by  the  Government,  embodied  in  a  banking  law, 
equivalent  to  securing  final  payment  of  all  currency  by  tlie  use  of  Gov- 
ernment bonds? 

Mr.  Eckels,  It  amounts  to  the  same  thing  as  the  guaranty  does  as 
long  as  the  credit  of  the  Government  is  maintained,  Avitli  the  exce[)tion 
that  the  law  providing  a  guaranty  might  be  repealed.  If  a  bond  is  out, 
the  Gov^ernment  can  not  repeal  it,  although,  of  course,  it  might  repudi- 
ate it. 

The  Chairman.  We  could  not  repeal  the  law  as  to  existing  currency. 
That  would  be  held  an  ex  post  facto  law'? 

Mr.  Eckels.  Of  course,  we  could  repudiate  it. 

The  Chairman.  Is  not  the  credit  of  the  country  in  doubt  to-day 
because  of  the  attempts  of  the  Government  to  maintain  the  current 
redemption  of  all  our  thousand  millions  of  i)aper  money? 

Mr,  Eckels,  I  would  answer,  yes. 

The  Chairman.  Now  the  next  question 

Mr.  Eckels.  That  is  the  source  of  doubt  as  to  the  Government's 
ability  to  maintain  that  amount  of  j^aper  with  its  limited  means  and 
limited  powers  given  to  the  Secretary  of  the  Treasury. 

CLEARING-HOUSE   DISTRICTS, 

The  Chairman.  Mr,  Fowler  refers  to  clearing-house  districts.  Clear- 
ing-house districts  are  one  thing  and  clearing  centers  are  quite  another 
thing.  Clearing-house  districts  refer  to  territorial  districts  and  clear- 
ing centers  refer  to  large  commercial  cities  of  which  the  bankers  will 
elect  one  which  is  reasonably  adjacent,  in  which  they  will  clear.  Xow, 
is  it  not  impossible  practically  to  have  clearing-house  territorial  dis- 
tricts, and  is  it  not  absolutely  necessary  to  have  clearing  centers,  local 
centers  ? 

Mr.  Eckels.  I  suppose  every  clearing-house  district  would  have  its 
center. 

The  Chairman.  Certainly,  but  that  would  be  territorial,  and  a  bank 
within  20  miles  of  one  large  place  might  not  clear  there  any  better  than 
a  bank  within  100  miles  of  that  place.  Ought  not  tlie  banks  to  be 
allowed  to  select,  within  reason,  the  clearing  house  center  where  they 
can  clear  most  economically  and  promptly,  rather  than  be  contined  to  a 
territorial  district? 

Mr.  Eckels.  The  territorial  district  would  undoubtedly  have  its 
redemption  center. 

The  Chairman,  Yes;  but  the  redemption  center  might  not  be  a  ter- 
ritorial center,  nor  any  nearer  to  a  business  center, 

Mr.  Eckels,  There  would  probably  be  a  union  of  business  and  terri- 
torial centers. 

The  Chairman,  Could  not  the  proposed  method  of  issuing  currency 
redeemable  by  banks  be  engrafted  in  our  present  national-bank  law, 
instead  of  incorporating  any  new  methods — except  where  you  are  obliged 
to  do  so — rather  than  a  new  law  ? 

Mr.  Eckels.  It  would  be  wise  to  accept  the  best  in  the  present  act 
and  only  try  to  change  those  things  which  do  not  contribute  to  the  best 
interests  of  business. 

The  Chairman.  I  have  no  more  questions  to  ask.  Mr.  Cox,  have 
you  any  questions  to  ask  ? 

Mr.  Cox.  I  have  a  few  short  questions  I  would  like  to  ask. 


41 G  FINANCIAL   AND    BANKING    SITUATION. 

As  1  understood  the  theory  of  the  bill  that  you  have  been  discussing 
and  the  questions  and  your  answers,  this  is  the  point:  It  would  confer 
ujjon  the  banks  ])ower  to  issue  circulating  notes  equivalent  to  their  cap 
ital  stock! 

Mr.  Eckels.  Yes. 

Mr.  Cox.  That  is  the  i)rinciple  it  starts  on  to  get  circulation.  That 
being  so,  that  power  l)eing  conferred  on  the  banks  to  issue  notes  to  the 
extent  of  tluMr  capital  stock,  what  kind  of  se(;urity  would  there  be  for 
any  depositor  of  the  bank? 

Mr.  Eckels.  The  iirst  set  of  notes  is  issued  against  the  bonds,  and 
the  second  notes  are  issued  against  the  assets,  which  are  eciual  to  tlie 
capital  stock.  The  deposits  would  still  have  as  securities  the  assets  of 
the  bank  in  the  way  of  theii'  bills  receivable  and  loans  and  discounts. 
Jt  is  not  expected  that  there  would  be  more  notes  issued  than  the  cap- 
ital stock  and  the  assets  of  the  banks  i)roper. 

Mr.  Cox.  Of  course  no  banker  would  do  that;  but  to  leave  that  part 
of  the  subject,  if  the  bank  has  the  authority  to  issue  notes  to  the  extent 
of  its  capital  stock  and  those  notes  are  based  upon  that  and  the  other 
additional  securities  given  for  it,  does  that  not  decrease  the  responsi- 
bility of  the  bank  to  the  depositors,  as  the  law  now  stands? 

Mr.  Eckels.  It  decreases  the  assets  which  thedepositorcould  look  to. 

Mr.  Cox.  In  other  words,  the  depositor  has  not  as  much  security 
under  this  system  as  he  has  under  the  })resent  system  ? 

Mr.  Eckels.  That  is,  he  has  not  as  much  security  in  a  badh'  con- 
ducted bank. 

Mr.  Cox.  Of  course,  we  always  have  to  assume  in  the  management 
of  any  bank  that  it  has  not  much  security  if  it  is  badly  conducted. 

Mr.  Eckels.  You  are  si)eaking,  Mr.  Cox,  of  the  notes  issued  against 
assets. 

Mr.  Cox.  Y^es.  I  want  to  draw  your  attention  to  another  proposi- 
tion that  came  out  of  this  discussion  this  morning,  whicth  we  have  had, 
I  think,  fully  explained  by  you,  and  that  is,  one  of  the  serious  troubles 
of  the  system  lies  in  the  fact  of  the  outstanding  demand  notes  of  the 
Government  and  the  Government  not  being  ])owerful  enough,  or  hav- 
ing money  enough,  to  redeem  them  on  ])resentation. 

Mr.  Eckels.  Jsot  having  the  means  Avhich  enabled  it  to  redeem 
them  except  at  extraordinary  exi^ense  aiul  under  extraordinary 
circumstances. 

Mr.  Cox.  Yes,  and  it  has  to  resort  to  somewhat  extreme  measures  to 
redeem  them  when  re<]uired, 

REDEEMING   SILVER    IN    fiOLD. 

I  want  to  call  your  attention  to  another  question.  In  examination, 
the  other  day,  you  told  ns  that  u])on  a  legal  pnnci])le  and  ui)on  the 
theory  that  is  held  by  Government  that  it  is  bound  to  maintain  the 
parity  between  the  two  metals,  if  demanded,  the  Government  would 
have  to  redeem  the  silver  dollars  in  gold? 

Mr.  Eckels.  1  think  so. 

Mr.  (^ox.  Now,  then,  we  take  up  the  demand  notes,  I  am  not  talking 
about  bonds.  Does  not  the  danger  still  exist  against  the  Coxernment 
that  it  would  be  reqnired  to  redeem  silver  in  gold? 

Mr.  Eckels.  TheCiovernment  might  be  leciuired  to  do  that,  but  it  is 
])robable  it  would  be  able  to  carry  tlie  ])resent  amount  of  silver,  if  it  is 
delinitely  known  that  no  more  shall  be  coined  and  that  all  our  business 
is  uuipiestionably  transacted  on  a  gold  basis. 


FINANCIAL    AND    BANKING    SITUATION.  417 


SAFE   REDEMPTION. 

]\rr.  Brosius.  Do  you  not  tbink  that  under  the  redemption  system, 
under  the  present  banking'  system,  when  the  credit  ot  tlie  Government 
is  iierfectly  good,  foreign  capital  is  invested  liere,  and  makes  no  demand 
on  our  gokl ' 

Mr.  Eckels.  It  is  all  right  as  long  as  those  conditions  exist. 

Mr.  BrosiUvS.  Supposing  those  conditions  are  reversed,  as  they  have 
been  in  the  last  two  or  three  years,  and  in  view  of  the  fact  that  we  are 
a  debtor  nation,  owing  say  $200,000,000,  or  $300,000,000  a  year  outside 
of  our  trade,  and  the  ibreign  holders  of  our  securities  have  a  right  to 
demand  gold,  and  that  our  credit  is  of  such  a  character  that  they  demand 
it,  would  any  system  of  redem])tion  by  the  Government  or  by  banks  witli- 
stand  for  a  year  the  continuous  demand  for  $200,000,000  or  $300,000,000 
in  gold  by  foreign  holders  of  American  securities? 

Mr.  Eckels.  Every  system,  of  course,  is  liable  to  be  endangered  by 
adverse  conditions,  but  tlie  point  that  I  have  tried  to  make  is  tiiat 
these  adverse  conditions  would  not  result  as  they  do  if  we  did  not 
have  the  laws  which  tend  in  a  large  measure  to  create  them. 

Mr.  Brosius.  But  if  the  conditions  which  I  have  described  of  the 
impairment  of  our  credit  existed,  then  it  would  be  impossible  to  main- 
tain gold  payments,  would  it  not,  by  any  system  of  redemption? 

Mr.  Eckels.  It  might  be  impossible,  but  the  impossibility  would  not 
be  demonstrated  so  quickly  with  the  banks  as  it  would  with  the 
Government.  Tlie  banks  would  be  better  able  to  protect  themselves, 
and  before  the  serious  ]»oint,  which  would  come  quickly  upon  the 
Government,  could  be  reached  with  the  banks  the  chances  would  be 
that  the  banks  would  be  ])repared  to  avert  it. 

Mr.  Brosius.  The  strain  could  be  resisted  longer  by  the  banks  than 
by  the  Government? 

Mr.  Eckels.  Yes. 

Mr.  Brosius.  Is  it  not  rather  desirable  to  have  all  our  paper  money 
of  this  country  for  current  redemption  dispensed  with  except  to  a  limi- 
ted extent  for  special  purjjoses  which  we  understand  to  be  necessary? 

Mr.  Eckels.  That  is  very  much  to  be  desired. 

Mr.  Brosius.  The  bank  currency  that  is  in  doubt  in  any  respect — 
that  is,  a  bank  currency  that  has  for  its  security  only  the  assets  of  the 
bank — as  some  of  the  banks  are  liable  to  be  mismanaged  and  go  into 
bankruptcy  or  break  up  without  anything  like  current  redemption,  and 
frecpient  redemption  is  necessary  in  order  to  keep  that  currency  good, 
isn't  it?  ^ 

Mr.  Eckels.  Yes,  the  banks  must  always  be  in  a  ])Osition  to  make 
the  redemittions  on  demand. 

Mr.  Brosius.  And  in  order  to  establish  the  fact  that  the  bank  is  in 
good  condition  the  currency  must  frequently  go  back  home  in  order  to 
test  the  ability  of  the  bank  ? 

Mr  Eckels.  Yes;  undoubtedly. 

Mr.  Brosius.  That  is,  it  would  go  home  to  get  a  certificate  of  good 
character  and  then  go  out,  good,  again  ? 

Mr.  Eckels.  But  probably  as  time  went  on  the  rapidity  of  the 
redemptions  would  lessen. 

Mr.  Brosius.  As  confidence  grew? 

Mr.  Eckels.  As  confidence  would  be  established,  unless  business 
decreased  and  there  was  no  reason  why  it  should  be  outstanding. 

Mr.  Brosius.  So  far  as  their  redemption  is  concerned,  the  necessity 
cub 27 


418  FINANCIAL    AND    BANKING    SITUATION. 

for  that  redemptiou  would  dimiiiisli  in  proportion  to  the  establishment 
of  the  credit  currency? 

Mr.  Eckels.  Yes;  in  so  far  as  redemptions  solely  to  demonstrate  the 
soundness  of  such  currency  is  concerned  and  not  redemptions  because 
the  notes  were  no  longer  needed  in  business. 

Mr.  Brosius.  It  is  said  that  about  one  fifth  of  1  per  cent  on  the 
circulation  wouhl  have  i)aid  that  portion  of  the  bank  currency  in  the 
last  thirty  years  which  the  Government  would  have  had  to  pay — a  tax 
of  one-fifth  of  1  i)er  cent.  That  would  be  upon  the  assumption  that  in 
the  future,  if  we  had  a  credit  currency  with  a  safety  fund  of  that 
character,  the  losses  would  be  no  greater  in  the  future  than  in  the  past. 

Mr.  Eckels.  That  is  the  theory. 

Mr,  Brosius.  Now,  is  it  fair  to  assume  that  the  losses  would  be  no 
greater  in  the  future,  when  all  the  bonds  are  in  the  custody  of  the 
banks,  than  they  were  in  the  past,  when  the  bonds  were  in  the  custody 
of  a  trustee? 

Mr.  Eckels.  It  is  fair  to  assume  that,  Mr.  Brosius,  coiipled  with  the 
statement  I  have  frequently  made — "with  the  same  character  of  man- 
agement." 

Mr.  Brosius.  But  would  the  character  of  the  management  be  the 
same  in  the  case  of  banks  that  are  mismanaged,  sometimes  through 
ignorance  and  sometimes  through  fraud  and  design?  If  the  bank  ofii 
cers  are  rascals  and  scoundrels,  would  they  not  be  more  likely  to  use  up 
their  own  money  if  the  bonds  were  under  their  own  control  than  if  under 
the  control  of  a  trustee? 

Mr.  Eckels.  If  a  man  tries  to  steal,  of  course  he  generally  steals 
everything  in  sight. 

Mr.  Brosius.  Exactly.  And  if  the  bonds  are  in  the  hands  of  the 
Government  he  can  not  steal  them. 

Mr.  Eckels.  But  if  lie  is  honest  ho  will  not  steal 

Mr.  Brosius.  We  are  presuming  they  are  not  honest.  We  are  pro- 
tecting the  holder  of  the  note,  and  the  point  I  make  is,  1  have  always 
had  contention  with  those  who  assume  that  a  certain  per  cent  in  the 
future  would  protect  note  holders  because  that  amount  of  money  would 
cover  all  the  losses  in  the  past. 

The  Chairman.  Outside  the  bonds 

Mr.  Brosius.  Providing  there  were  no  bonds  deposited.  That  is 
assuming  that  the  rascals  and  scoundrels  would  have  stolen  no  more 
money  if  the  bonds  were  in  their  own  hands  than  they  would  if  the 
bonds  were  in  the  hands  of  the  Government  as  trustees. 

The  Chairman.  I  beg  your  pardon.     They  do  not  assume  that. 

Mr.  Brosius.  That  is  the  very  thing  upon  which  they  make  the 
assumption.  I  want  the  Comptroller  to  understand  me.  Under  the 
present  bond  system,  a  bank  can  not  steal  bonds,  and  whatever  else 
the  bank  may  do  the  bonds  stand  there  for  the  redemption  of  the  cur- 
rency. Jf  he  had  the  bonds,  he  might  steal  the  bonds  also;  then  what 
would  stand  for  the  cunency? 

Mr.  Eckels.  But  there  never  lias  been  a  time  where  there  was  not 
enough  assets  left  to  to  take  care  of  the  currency. 

Mr.  r>Rosius.  That  is  to  say,  if  you  diminish  the  currency,  you  diminish 
the  se(;uiity  of  the  depositors. 

Mr.  KCKELS.  There  is  no  question  about  that. 

Mr.  Brosius.  Do  you  think  this  business  into  which  the  Government 
of  the  United  States  shall  go,  to  establish  banking  institutions,  to  sanc- 
tion them,  inviting  you  and  me  to  deposit  money  there,  and  after  that 
is  done  to  authorize  them  to  issue  a  currency  which  shall  be  a  first  lieu 
upon  the  money  you  and  1  deposit  there 


FINANCIAL    AND    BANKING    SITUATION.  419 

Mr.  Eckels.  The  theory  of  all  laws  on  the  subject  is  that  the  note 
holder  is  the  one  to  be  protected  as  against  tiie  (le])ositor. 

Mr.  Brosius.  I  Icnow,  but  he  should  be  protected  without  sacrificing 
the  depositor,  if  that  is  possible. 

Mr.  Eckels.  And  should  be  given  the  greater  number  of  rights. 

Mr,  Brositjs,  Our  system  is  to  protect  the  note  holder  without  sacri- 
ficing the  depositor 

Mr.  Eckels.  You  diminish  the  depositors'  assets  by  just  so  much  by 
tying  up  an  amount  in  bonds  for  the  benefit  of  the  note  holder.  The 
Oovernment,  it  is  evident  under  the  present  law,  acts  on  the  theory  that 
the  first  man  to  be  looked  after  is  the  note  holder. 

Mr.  Brosius.  You  do  not  mean  to  say  that  the  assets  are  diminished 
by  tying  up  the  bonds.     They  are  still  the  property  of  the  bank. 

Mr.  Eckels.  They  are  property  of  the  bank  specifically  set  aside  at 
the  expense  of  the  depositor  for  the  benefit  of  the  note  holder. 

Mr.  Brosius.  Ought  he  not  to  have  the  benefit? 

Mr.  Eckels.  That  is  the  point  I  make,  but  you  say  the  depositor 
ought  to  be  looked  after. 

Mr.  Brosius.  I  say  the  note  holder  should  be  first  looked  after,  but 
in  such  a  way  as  not  to  destroy  the  security  of  the  depositor  unless  it 
is  necessary. 

NOTES  ISSUED  AGAINST  ASSETS. 

Mr.  Johnson.  I  want  to  ask  one  question  with  a  view  of  getting  a 
final  statement  from  the  Comptroller  as  to  his  i^ositiou  on  one  point.  Is 
it  not  your  opinion  that  in  whatever  form  of  banking  and  currency  law 
may  be  devised,  a  portion  of  the  circulating  notes  issued  by  the  banks 
should  be  issued  on  their  assets  alone? 

Mr.  Eckels.  Yes;  it  is  within  the  limits  of  those  notes  that  is  to  be 
found  what  is  termed  the  elasticity  of  bank  issues. 

Mr.  Johnson.  Do  not  the  statistics  show  that  if  the  1  per  cent  tax 
on  circulation  on  national-bank  notes  had  been  applied  to  the  payment 
of  the  notes  of  the  banks  that  have  failed  from  the  time  of  the  organ- 
ization of  the  national-bank  act  to  the  present  time  there  would  have 
been  left  a  very  large  balance? 

Mr.  Eckels.  Yes;  there  would  have  been. 

Mr.  Johnson.  Can  you  tell  the  total  amount  of  notes  of  the  failed 
banks,  the  total  amount  of  the  tax  on  circulation,  and  the  balance? 

Mr.  Eckels.  The  total  amount  of  outstanding  notes  in  circulation  of 
all  failed  national  banks  to  the  date  of  the  last  report,  October  31, 
1896,  was  $19,(341,909.  The  tax  collected  on  bank-note  circulation  by 
the  Government  was  $80,007,905.  The  statistics  will  be  found  on  page 
109  of  my  last  annual  report  to  Congress. 

Mr.  Johnson.  Might  not  the  credit  of  the  Government  De  below  par 
and  at  the  same  time  the  credit  of  the  bank  in  that  country  be  good? 

Mr.  Eckels.  Yes.  ^ 

Mr.  Hill.  Can  the  same  liberal  provision  of  issuing  credit  currency 
be  safely  given  under  a  general  law  that  could  be  given  under  a  system 
of  special  charters,  where  there  was  an  examination  into  the  bank  in 
each  case — into  its  location  and  as  to  the  men  having  it  under  control? 

Mr.  Eckels.  You  would  have  to  have  a  general  law  on  the  subject 
to  make  it  of  general  benefit. 

Mr.  Hill.  I  admit  that,  but  can  the  same  general  provisions  be  given 
under  a  general  law  as  could  be  given  under  a  system  of  special 
charters  ? 

Mr,  Eckels.  No;  of  course  not. 


420  FINANCIAL    AND    UANKING    SITUATION. 

Mr.  ITiLL.  I  mean,  Avould  it  be  safe  to  j;ive  them  where  any  three 
meu  coiihl  organize  a  bank  '? 

Mr.  Eckels.  1  have  no  doubt  you  couhl  have  more  safety  })rovided 
under  special  laws  makiiiii-  recjuisite  si)ceial  iiuarantys,  but  1  do  not 
see  how  such  a  thing  would  be  practical.  The  law  would  have  to  be 
general  in  its  terms  and  ])rovisi()ns. 

Mr.  Hill.  \\'hich  wouhl  you  prefer,  one  redemption  point  for  all 
banks,  or  numerous  redemption  districts,  made  com[)ulsory,  or  such 
points  as  eacli  bank  may  choose  under  such  regulations  as  each  bank 
may  make  for  itself  l' 

Mr.  Eckels.  1  would  leave  it  largely  to  each  bank  to  select  its  redemp- 
tion center,  but  I  would  liave  the  regulations  made  by  the  Government's 
supervising  oflicer  instead  of  by  the  l)ank. 

Mr.  Hill.  You  mean  as  to  tlie  reserve 

Mr.  Eckels.  1  mean  as  to  the  manner  of  redemption. 

Mr.  Hill.  When  I  speak  of  the  choice  of  the  banks  I  mean  in 
selecting  their  own  redemption  points. 

Mr.  Eckels.  1  would  leave  it  largely  to  the  banks. 

TWO    FORMS    OF   REDEMPTION. 

Mr.  Hill.  Do  you  tliink  well  of  any  system  that  redeems  one  note 
of  the  bank  by  another  note  of  the  same  bank  of  a  diiferent  form? 

Mr.  Eckels.  You  mean 

Mr.  Hill.  Having  two  classes  of  notes  and  redeeming  one  note  in 
another  kind  of  a  note? 

Mr.  Eckels.  1  would  have  the  notes  redeemed  in  gold  and  gold 
only. 

Mr.  Hill.  Yes;  but  on  general  principles,  would  you  think  well  of 
any  system  that  redeemed  one  form  of  its  notes  in  another  form  of  the 
same  bank  notef 

Mr.  Eckels.  No;  I  would  not.  No  redemption  is  made  if  the 
redeeming  money  has  itself  to  be  redeemed. 

Mr.  Hill.  Do  you  see  any  necessity  of  keeping  a  15  per  cent  reserve 
against  circulation  if  fffle  half  of  that  reserve  is  not  redemption  mone^^? 

Mr.  Eckels.  1  would  i^refer  to  keep  a  smaller  reserve  and  have  it 
redemption  money.  You  estimate  your  reserves  against  deposits,  Mr. 
Fowler? 

Mr.  Fowler.  The  same  ai)plies  to  the  notes  issued, 

Mr.  Eckels.  1  think  you  estimate  your  reserves  too  high. 

Mr.  Fowler.  What  do  you  mean — reserves  against  redemption? 

Mr.  Hill.  JUit  he  cuts  it  down  by  liaviug  half  the  money  not 
redemption  money. 

Mr.  Fowlj;r.  That  would  not  make  any  difference. 

The  Chairman.  Mr.  Hill  has  the  tloor. 

Mr.  Hill.  That  is  a  question  on  his  bill.  I  think  Mr.  Fowler  ought 
to  be  given  an  opportunity  to  answer. 

Mr.  Eckels.  A  nuich  less  amount  of  redemption  money  is  necessary 
to  care  for  the  notes  than  for  the  deposits. 

Mr.  Fowler.  One  half  as  much? 

Mr.  Eckels.  Certainly  as  low  as  that. 

Mr.  Fowler.  Then,  Mr.  Hill,  you  are  answered. 

Mr.  Hill.  1  am  answered;  but  in  your  judgment  there  would  be  no 
necessity  of  keeping  a  15  per  cent  reserve  unless  it  was  redemption 
money  ? 

Mr.  r.CKELS.  I  would  have  all  the  reserve  against  notes  in  money 
which  absolutely  redeems. 

Mr.  Hill.  And  1  understand  from  the  gist  of  your  remarks  that  you 


FINANCIAL    AND    BANKING    SITUATION.  421 

would  object  to  the  redemption  features  of  tlie  Fowler  bill  ;md  the 
Walker  bill,  on  the  same  ground  that  yon  object  to  mine — that  there 
are  two  forms  of  redemption  ? 

Mr.  Eckels.  I  would  reduce  all  redemption  money  to  one  form — that 
of  gold. 

Mr.  Hill.  As  I  understand  you,  you  would  have  one  form  of  note 
only.  I  want  to  see  if  I  have  your  oi)inion  right.  As  I  understand 
you,  you  would  have  one  form  of  note  only,  pnrtly  secured  by  guaranty 
or  Government  bonds  or  in  some  other  way,  and  partly  issued  against 
assets,  but  not  distinguished  in  its  form,  and  all  redeemable  in  gold 
only?    That,  as  I  understand,  is  the  gist  of  your  recommendation. 

Mr.  Eckels.  Yes,  I  would  have  a  portion  of  the  notes  issued  against 
security  or  with  guarauty,  and  a  portion  against  assets,  but  1  would 
have  them  all  redeemable  in  gold.  So  far  as  there  being  a  different 
appearance  in  the  notes  issued  against  the  assets  and  the  notes  issued 
against  securities,  that  wonld  not  cut  any  figure  as  long  as  they  were 
redeemable  in  the  same  thing,  but  if  they  were  not  redeemable  in  the 
same  thing  I  wonld  not  permit  the  two  classes  to  be  issued. 

Mr.  Hill.  How  is  the  note  holder  able  to  ascertain  whether  the  note 
he  holds  when  a  bank  suspends  is  secured  by  tlie  guaranty  or  by  the 
assets  of  the  bank  other  than  the  guaranty,  and  if  he  can  not  tell 
wherein  is  the  extra  confidence  which  is  given  by  having  any  of  them 
secured  by  a  guaranty'? 

Mr.  Eckels.  Under  Mr.  Walker's  bill  all  the  notes  are  guaranteed 
by  the  Government  and  under  Mr.  Fowler's  bill  they  are  guaranteed  by 
the  safety  fund.  Under  your  bill,  Mr.  Fowler,  does  the  Government 
immediately  pay  all  tlie  notes  outstanding  of  failed  banks"? 

Mr.  FowLEK.  They  draw  5  per  cent  until  the  holders  are  notified  to 
present  them. 

Mr.  Eckels.  Under  Mr.  Fowler's  bill  there  would  probably  have  to 
be  some  distinguishing  feature  in  the  bills  themselves. 

Mr.  Hill.  You  would  not  approve,  then,  of  a  different  form  of  note 
indicating  on  its  face  which  is  secured  by  a  Government  guaranty  and 
which  is  secured  by  the  assets  of  the  bank  only? 

Mr.  Eckels.  1  should  greatly  prefer  to  have  the  bills  similar.  I  think 
it  would  facilitate  the  circulation  of  them. 

Mr.  Hill.  One  more  question.  Would  you  approve  of  one  large 
banking  institution  in  the  United  States  that  would  take  up  all  the 
United  States  Government  debt  and  manage  the  subtreasury  business, 
instead  of  its  being  carried  on  by  the  Government'? 

Mr.  Eckels.  I  think  the  Government  might  very  properly  finance  its 
affairs  through  banks. 

Mr.  Hill.  I  do  not  mean  to  say  through  the  banks  as  now  organized, 
but  substantially  the  old  United  States  Bank. 

Mr.  Eckels.  I  am  not  pre])ared  to  answer  a  question  like  that,  but 
I  think  the  Government  could  a  great  deal  better  finance  its  affairs  in 
different  ])ortions  of  the  country  through  certain  established  institii- 
tions  than  it  does  through  the  present  subtreasury  system. 

The  Chairman.  There  are  some  gentlemen  who  have  not  asked  any 
questions,  and  if  they  desire  to  ask  them  they  are  now  entitled  to  the 
floor;  and  after  that  Mr.  Fowler  can  take  the  floor. 

CREDIT   OF   the    GOVERNMENT. 

Mr.  Spalding.  I  have  a  few  questions  I  would  like  to  ask. 

In  one  of  the  questions  asked  by  the  chairman  of  the  committee,  Mr. 
Comptroller,  there  seemed  to  be  a  reflection  on  the  credit  of  the  United 
States  currency.     I  do  not  know  whether  it  was  intended  or  not. 


422  FINANCIAL    AND    BANKING    SITUATION. 

The  CnAlRMAN.  I  am  no  respector  of  persons.     1  seek  only  truth. 

Mr.  Spalding.  Is  it  true  that  there  is  any  hiek  of  credit  in  the  (lov- 
erument  currency,  inasmuch  as  the  bonds  of  tlie  (iovernment,  drawing 
4  per  cent  interest,  stand  at  a  premium  to  day  of  I'li  and  2.'>?  Wouhl 
not  that  indicate  that  the  Government  security  is  as  good  as  any  Gov- 
ernment on  earth,  and  better  than  any  bank  in  the  world? 

Mr.  Eckels.  1  do  not  think  that  the  chairman  has  any  reference  to 
the  currency  issues  which  were  secured  by  bonds. 

Mr.  Spalding.  1  am  talkin*;-  about  the  credit  of  the  Government, 
which  is  bonds,  selling  at  22  premium  to-day. 

Mr.  Eckels.  Yes. 

Mr.  Spalding.  Would  not  that  establish  credit  beyond  peradventure 
of  a  doubt,  equal  to  almost  any  government  on  earth? 

Mr.  Eckels.  Yes;  that  was  a  demonstration.  IJut  it  has  required 
these  frequent  public  demonstrations  to  show  that  its  bonds  would  sell 
at  a  good  price,  and  always  up  until  the  very  day  when  they  were  sold 
nobody  knew  what  they  were  going  to  sell  for.  Tliese  demonstrations, 
with  their  attendant  discussions  and  doubts,  have  been  exhausting. 
Under  a  ju-oper  system  they  would  not  have  been  necessary. 

Mr.  Spalding.  Is  iu)tthat  the  case  with  anything? 

Mr.  Eckels.  No;  it  is  not. 

Mr.  Spalding.  1  think  it  is.  For  instance,  the  Baltimore  and  Ohio 
Eailroad  stock  or  bonds — they  would  not  know  what  that  stock  or 
bonds  would  sell  for  before  it  was  sold. 

Mr.  Eckels.  But  you  know,  Mr.  Spalding,  that  it  "was,  from  the 
passage  of  the  Sherman  Act,  a  question  of  discussion  by  those  abroad 
dealing  with  us  and  by  ])eople  at  home  and  by  the  Government  officials 
at  the  Treasury  Department  whether  the  Government  under  existing 
circumstances  would  be  able  to  maintain  redemiition  of  its  obligations 
in  gold,  and  that  the  Secretary  of  the  Treasury,  Mr.  Foster,  himself 
called  such  fact  to  the  notice  of  Congress. 

Mr.  Spalding.  Politics. 

Mr.  Eckels.  No;  no  politics  in  this;  simply  the  fact;  Secretary  Fos- 
ter himself  felt  that  with  the  present  laws  and  the  present  powers  of 
the  Secretary  of  the  Treasury  the  Government  did  not  find  itsell"  in  a 
position  to  maintain  its  credit,  lie  insisted  that  provision  should  be 
made,  bec^ause  of  the  addition  of  the  Sherman  notes,  to  increase  the 
gold  reserve  from  $I0(),0()0,0()()  to  .$150,000,000. 

Mr.  Spalding.  The  laws  of  the  Government  are  substantially  the 
same  as  they  have  been,  and  there  has  been  placed,  as  I  understand  it 
from  an  ollicial  communication  from  the  Secretary  of  the  Treasury, 
$00,000,000  of  gold  in  the  Treasury  for  greenbacks  in  the  last  six 
months. 

Mr.  Eckels.  Yes. 

Mr.  Spalding.  And  that  there  has  been  placed  $195,000,000  v.  ithin 
the  last  four  years'! 

Mr.  Eckels.  Yes. 

Mr.  Spalding.  Of  gold  that  was  put  in  for  the  credit  notes  of  the 
Government  of  the  United  States? 

Mr.  ICcKELS.  And  tliere  has  been  drawn  out  a  good  many  times 
$195,000,000  by  persons  who  held  those  notes,  for  fear  if  they  did  not 
obtain  gold  on  them  they  would  not  be  redeemed  in  gold  when  they 
were  finally  presented.  As  a  matter  of  fact,  the  (|uestion  is  not 
whether  the  credit  of  the  Government  is  actually  all  right,  but  whether 
or  no  it  has  not  been  doubted.     That  is  the  point. 

Mr.  Spalding.  The  conditions  are  very  similar  to  what  they  were  a 
year  ago,  are  they  not?     There  has  been  no  change,  has  there? 


FINANCIAL    AND    BANKING    SITUATION.  423 

THE   ELECTION   OF   1896. 

Mr.  Eckels.  jSTo;  there  lias  been  no  cluiuge  except  that  the  public, 
because  of  the  result  of  the  Presidenthil  election,  came  to  the  couclu- 
sioii  that  we  were  not  g(''"g  to  be  brought  to  a  silver  basis.  The 
extraordinary  influx  of  gold  through  the  demand  for  our  agricultural 
l)roduce  has  also  had  an  eflect  iu  evidencing  the  fact  that  more  gold 
was  in  the  country  and  more  in  the  Treasury. 

Mr.  Spalding.  The  cause  of  that  demand  was  the  suffering  and 
depressiou  in  India  and  short  crops,  which  gave  us  an  increased  demand 
for  our  products.  If  't  had  not  been  for  the  sufi'eriug  in  India,  we  would 
not  have  had  that? 

Mv.  Eckels.  That  is  so. 

Mr.  Spalding.  Then  it  was  caused  by  a  short  crop  in  India,  causing 
gold  to  come  in.  Otherwise  we  would  not  have  been  able  to  sell  our 
wheat  for  so  much  as  we  did.  Would  it  not  have  lessened  the  security 
to  the  depositor  and  also  to  the  note  holder  if  the  currency  of  the  bank 
was  based  ou  its  assets  aloiie^for  instance,  a  bank  with  a  $100,000 
capital,  with  a  deposit  of  $300,000,  and  an  issue  in  currency  of  $100,000. 
The  depositor  and  note  holder  would  be  less  secure  than  he  would  be 
uuder  the  present  law? 

Mr.  Eckels.  Not  at  all.  If  the  bank  was  properly  conducted,  it 
would  be  just  as  secure,  because  a  bond  is  an  asset  of  a  bank. 

Mr.  Spalding.  Ko;  this  is  a  mathematical  proposition;  and  he  must 
be  that  much  less  secure;  would  he  not  be? 

Mr.  Eckels.  What  security  has  the  note  holder  or  the  depositor  now, 
outside  of  the  liability  of  the  shareholder,  beyond  the  assets  of  the 
bank?  The  assets  of  the  bank  consist  of  its  bills  receivable,  its  stocks, 
its  bonds,  its  cash,  real  estate,  and  other  items  constituting  its  resources. 

Mr.  Spalding.  I  think  that  you  and  I  understand  each  other.  That 
a  bank  with  $100,000  capital,  having  $100,000  4  per  cent  bonds  to  its 
credit,  with  $90,000  worth  of  bills  issued,  is  perfectly  secured,  because 
the  bonds  are  at  a  premium  to  day  of  2L>.  Now,  the  difference  between 
$22,000  and  $10,000  in  circulation  would  give  them  $32,000  over  and 
above  the  assets  of  the  banks.  That  would  not  be  less  security,  would 
it? 

Mr.  Eckels.  We  are  proceeding  on  the  theory  that  the  bank,  instead 
of  having  the  bonds  in  the  Treasury,  would  have  them  in  the  vault  as 
an  asset.  It  would  have  just  as  large  an  amouut  of  assets  to  meet  its 
obligations.  The  question  would  be,  whether  the  assets  should  be  kept 
in  the  bank  or  kept  by  the  Government. 

Mr.  Spalding.  Supposing  they  were  kept  in  the  bank,  they  would 
be  secured,  of  course,  if  a  bank  was  run  on  that  high  plane  that  you 
talk  about — which  no  bank  ever  has  been  run  on,  even  the  Baring 
Brothers  or  any  other  bank — and  the  assets  did  not  shrink  in  value ;  but 
when  a  bank  fails  its  assets  necessarily  shrink,  the  same  as  when  a  part- 
nership fails  the  assets  are  distributed  and  never  fully  paid.  The 
depositor  and  note  holder  would  be  infinitely  less  secured. 

Mr.  Fowler.  Infinitely  less  means  nothing  whatever. 

Mr.  Spalding.  A  great  deal  larger. 

I  am  glad  to  see  by  the  answer  of  the  Comptroller  that  we  have  estab- 
lished the  credit  of  the  United  States. 

Mr.  Johnson.  I  think  the  testimony  of  the  Comptroller  has  been 
exceedingly  clear  and  interesting  and  speaks  for  itself. 

Mr.  Eckels.  There  has  been  no  attempt  made  to  discredit  the  credit 
of  this  Government.  I  have  only  undertaken  to  point  out  the  fact  that 
the  Government  maintains  a  financial  policy  which  makes  its  credit  a 


424  FINANCIAL    AND    BANKING    SITUATION. 

questiou  of  discussion.  That  there  is  something  wioug  in  a  i^oliey  which 
so  results,  I  think,  nuist  be  patent  to  anyone.  Nobody  is  discussing 
the  general  organization  of  tlie  (lovernment,  because  everybody  thinks 
it  is  sound.  Xobody  is  discussing  our  i>ub]ic  school  system,  because 
everybody  accepts  it  as  sound.  Nobody  is  discussing  the  general  sound- 
ness of  the  fuiulamental  laws  upon  which  our  institutions  are  based, 
because  they  are  accei)ted  as  sound.  But  the  very  fact.that  everybody 
isdiscussing  the(]uestionof  our  monetary  system  and  the(|uestionof  our 
banking  system  and  the  question  whether  or  not  the  Government  will 
maintain  the  payment  of  gold  or  silver,  or  whether  the  (Jovernment  will 
maintain  the  redemption  of  its  obligations  in  gold,  in  and  of  itself, 
demonstrates  the  fact  that  it  is  not  up  to  the  level  of  what  it  ought  to 
be.  It  all  results  in  doubt,  and,  rightly  or  wrongly,  the  Government  in 
its  fiscal  operations  sutlers,  and  the  business  interests  of  the  country 
also  do. 

Mr.  Spalding.  Is  not  that  same  thing  being  discussed  in  (Jermany, 
in  England,  in  France,  and  in  every  country  on  the  face  of  the  earth, 
almost  as  much  as  it  is  here? 

.Air.  Eckels.  Nobody  is  discussing  the  credit  of  England,  or  discuss- 
ing the  credit  of  France,  or  discussing  the  credit  of  Germany,  but  nuiuy 
have  discussed  and  are  discussing  the  question  of  whether  the  United 
States  Government  would  be  able  to  redeem  its  obligations  in  gold, 
and  to  that  extent  the  credit  of  the  Government  has  been  injured  and 
the  credit  of  the  people  as  well.  This  has  been  manifested  in  the 
withdrawal  of  foreign  investments  and  the  failure  to  make  domestic 
ones. 

NOTES   A   FIRST   LIEN   ON   ASSETS. 

Mr.  Fowler.  Can  you  see  any  dilFerence  between  the  Government 
taking  possession  of  a  sufficient  amount  of  the  assets  of  the  bank  to 
secure  the  note  holder  and  giving  the  note  holder  the  first  lier  on  the 
assets  of  the  bank? 

Mr.  Eckels,  It  amounts  to  tiie  same  thing.  I  suppose  the  first  lien 
on  the  assets  of  the  bank  would  operate  for  the  note  holder  by  the 
Government  taking  possession  of  the  assets  for  him. 

Mr.  Brosius.  I  would  like  to  ask  you  whether  you  think  it  would  be 
fair  to  give  the  note  holder  the  first  lien  on  the  assets.  Isn't  it  just  as 
fair  to  give  the  note  holder  the  first  lien  on  the  assets  as  it  is  under  the 
national  banking  system  for  the  Government  to  seize  upon  about 
$120,000  of  the  a'ssets  to  secure  $90,000  of  its  notes? 

Mr.  Eckels.  It  amounts  to  about  the  same  thing. 

Mr.  Fowler.  Is  it  not  a  fact,  or  is  not  the  fact  presumed,  that  when 
the  notes  of  a  bank  are  issued  under  the  credit  system  they  will  bring 
an  e(]ual  amount  of  assets,  just  the  same  as  if  you  loaned  out  a  corre- 
sponding amount  of  the  deposits  of  the  bank? 

Mr.  EciiELS.  Certainly  the  notes  are  not  going  out  except  for  some- 
thin  g  in  return. 

Mr.  Fowler.  So  that  there  is  absolutely  no  diifercnce,  is  there, 
between  ,1  bank  loaning  its  deposits  and  a  bank  loaning  its  notes f 

Mr.  Eckels.  No.  It  loans  deposits  and  receives  promissory  notes  of 
borrowers,  against  whicli  it  issues  its  bank  notes. 

Mr.  Fowler.  Is  it  not  true  that  the  experience  of  the  national  banks 
since  1803  shows  that  all  those  banks  wliicli  have  failed  and  been  closed 
out  liave  returned  75  per  cent  of  the  lial)ilities? 

Mr.  EcKKLS.  Yes;  about  an  average  of  75  per  cent. 

Mr.  Fowler.  As  between  the  creation  of  a  safety  fund,  that  is  shown 


FINANCIAL    AND    BANKING    SITUATION.  425 

by  experieuce  to  be  adequate  to  redeem  notes,  and  guaraiiteeiug  the 
uotes  by  tlie  Government,  which  do  you  think  wouhl  be  preferable? 

Mr.  Eckels.  The  Government  would  run  the  less  risk  with  the  safety 
fund. 

Mr,  Fowler.  In  your  Judgment  that  is  the  proper  system — to  have 
a  safety  fund  created  tlirougii  a  tax;  and  would  a  percent  be  sufticieiit"? 

Mr.  Eckels.  It  has  worked  very  successfully  wherever  that  has  been 
tried.  It  would  be  an  additional  safeguard  and  guaranty  to  the  note 
holder.     Five  per  cent  ought  to  be  sufticient. 

CIRCULATION   OF    SILVER   COIN. 

Mr.  Fowler.  Your  idea  about  the  present  amount  of  silver  money 
circulating  with  safety  among  the  people  is  based  on  the  fact  that  peo- 
ple would  virtually  find  use  for  that  much,  and  that  our  silver  money, 
in  the  form  of  coin  instead  of  certitlcates,  would  not  be  gathered  as 
silver  and  presented  for  redemjitionl 

Mr.  Eckels.  I  do  not  think  they  would  be. 

Mr.  Fowler.  It  would  not  facilitate  its  presentation  when  it  is  in 
the  form  of  silver  money? 

Mr.  Eckels.  It  would  be  rather  an  expensive  luxury  to  be  sending 
the  silver  to  a  redemption  i)oint  and  paying  the  express  on  it  both 
ways. 

Mr.  Fowler.  That  is  the  i)oint. 

Mr.  Eckels.  It  is  not  unlikely  that  the  people  might  be  able  to 
-use  that  amount  of  silver  in  the  country.  They  would  be  unable  to 
use  any  more.  The  amount  which  we  already  undertake  to  use  is  a 
very  large  amount. 

NOTE   redemption. 

Mr.  Fowler.  In  answer  to  a  question  by  Mr.  Brosius,  in  which  he 
referred  to  the  redemjjtion  of  notes,  you  said  you  thought  the  redemp- 
tion of  notes  ought  to  be  reduced  to  a  minimum — reduced  to  a  mini- 
mum in  times  of  redemption,  I  suppose  you  meant.  Were  you  then 
referring  to  the  redemption  of  national-bank  notes  or  were  you  referring 
to  a  system  of  credit  currency? 

Mr.  Eckels.  I  was  referring  to  the  redemption  of  the  currency  upon 
the  ground  of  doubt  as  to  its  goodness,  which  I  stated  ought  on  such 
account  to  be  reduced  to  a  minimum.  I  coupled  with  that  statement 
the  statement,  as  I  now  remember,  that  of  course  it  would  be  redeemed 
whenever  business  needs  did  not  require  it  to  be  outstanding.  The 
jjoint  in  Mr.  Brosius's  first  question  was  that  the  fie(|uency  of  redemp- 
tions would  be  indicative  of  the  doubt  of  the  holder  of  the  note  as  to 
whether  or  not  it  was  a  good  note. 

Mr.  Fowler.  But  as  to  its  goodness;  would  it  ever  be  brought  in 
question  if  the  notes  were  redeemed  by  the  Government  in  case  the 
banks  failed? 

Mr.  Eckels.  No;  certainly  not;  if  redeemed  as  at  present. 

Mr.  Fowler.  Therefore  the  only  thing  that  would  send  it  home 
would  be  the  self-interest  of  other  banks  to  get  their  own  notes  out? 

Mr.  Eckels.  The  wish  of  the  individual  note  holder,  the  self-interest 
of  other  banks,  and  the  fact  that  there  was  need  of  it  in  the  demands 
of  business. 

Mr.  Fowler.  That  is  it.  The  actual  reason  that  other  banks  do  not 
want  it  in  their  community  and  the  bank  itself  had  no  use  for  it  in 
circulation. 


426  FINANCIAL    AND    BANKING    SITUATION. 

Mr.  Eckels.  It  is  (juite  impossible  to  keep  a  dollar  in  circulation 
beyoiul  the  needs  of  business. 

Mr.  Fowler.  Mr.  Brosius  made  a  distinction,  or  an  attempt  at  a  dis- 
tinction, between  the  re<lenii)tion  of  bank  notes  and  the  redemi)tion  of 
the  bank  deposits.  Is  it  not  as  essential  to  redeem  its  deposits  as  it  is 
to  redeem  its  notes? 

Mr.  Eckels.  Unquestionably  it  must  meet  its  deposits  just  as  much 
as  it  does  its  notes.  It  would  no  doubt  have  to  meet  its  depositors' 
demands  more  fre(|uently  than  the  note  holders'  demands. 

Mr.  EowLEK.  Therefore,  the  fact  that  the  bank  issues  notes  is  no 
more  a  strain  on  its  credit  than  when  it  takes  a  deposit  and  gives  a 
man  a  pass  book;  is  it? 

Mr.  EcKLES.  It  is  simply  an  evidence  of  indebtedness  on  the  part  of 
the  banks,  taking  the  form  of  a  promissory  note  instead  of  a  book 
account.     That  is  the  only  difference. 

SPECIAL   CHARTERS. 

Mr.  Fowler.  Mr.  Hill  asked  a  question  sugji:esting  that  it  might 
possibly  be  safer,  when  a  bank  took  out  its  charter,  to  give  it  a  special 
charter  in  which  it  would  be  determined  how  much  credit  currency  that 
particular  bank  should  issue.  Is  it  not  a  fact  that  the  amount  of  credit 
currency  that  it  ought  to  have,  from  the  standpoint  of  its  own  creditor 
from  the  standpoint  of  its  local  needs,  would  change  from  year  to  3'ear, 
and,  being  under  the  control  of  the  (Government,  it  would  always  be 
determined  from  year  to  year?     Would  not  that  be  the  right  system? 

Mr.  Eckels.  My  theory  would  be  to  leave  it  to  the  bank  itself. 

Mr,  Fowler.  Under  the  supervision 

Mr.  Eckels.  Yes,  under  the  supervision  of  the  Government's  officers. 
I  understood  Mr.  Hill  to  say  that  there  might  be  in  a  special  charter 
more  safeguards  thrown  around  the  currency.  I  did  not  understand 
him  to  say  that  it  would  affect  the  volume.  I  think  his  point  related 
to  the  safeguards  thrown  around.  1  do  not  myself  believe  in  special 
charters. 

Mr.  Fowler.  But  he  pointed  out  that  when  a  special  charter  was 
granted  an  examination  could  be  made  as  to  the  condition  of  the  bank, 
and  so  it  could  be  determined  in  that  special  charter  how  much  currency 
the  bank  could  have. 

Mr.  Hill.  I  asked  the  general  question  as  to  whether  as  liberal  pro- 
A'isions  could  be  given  under  a  general  law  in  reference  to  credit 
currency  as  under  a  system  of  special  charters. 

Mr.  Eckels.  The  amount  of  credit  currency  ought  to  be  regulated 
by  the  cay)ital  of  the  bank. 

Mr.  Fowler.  Would  it  not  be  better  to  have  that  entirely  under  the 
supervision  of  the  Comptroller  each  year?  He  could  pass  upon  each 
as  it  arose. 

Mr.  I'.CKELS.  The  law  sUould  be  a  general  one.  I  understand  from 
Mr.  Hill,  in  regard  to  special  charters,  that  under  that  method  he 
believes  extra  precautions  could  be  taken  relative  to  the  note  holder. 

NOTES  REDEEMABLE  IN  GOLD  ONLY. 

Mr.  Hill.  In  the  bill  under  discussion  to-day  tlie  provision  for  the 
redemj)ti()n  of  credit  currency  is  that  it  shall  be  redeemed  either  at  the 
counters  of  the  banks  or  at  a  clearing  house  city  in  gold,  or  40  per  cent 
thereof  may  be  redeemed  in  United  States  Grovernment  bond  notes  or 
silver. 


FINANCIAL    AND    BANKING    SITUATION.  427 

Mr.  Fowler.  'No  silver  in  it. 

Mr.  Hill.  No  silver  in  your  bill? 

Mr.  Fowler.  No,  sir;  and  that  these  Government  bond  notes  are 
then  redeemable  npon  denmnd  in  gold.  Kow,  the  object  I  had  in  that 
was  that  this  was  a  transition  period,  and  so  soon  as  the  United  States 
Government  bond  notes  are  retired  and  we  have,  through  evolution, 
reached  a  perfect  and  general  credit  system,  and  there  will  liave  been 
no  more  bond  notes,  we  will  have  acquired  gold  enough  throughout  the 
country  in  the  banks  to  have  gold  redemption  alone. 

Mr.  Eckels.  You  -would  do  better,  Mr.  Fowler,  by  having  all  your 
notes  redeemable  in  gold. 

Mr.  Fowler.  Is  it  your  opinion  that  we  could  start  on  such  a  sys- 
tem as  that,  and  if  the  10,000  banks  in  this  country  would  go  into  it 
they  could  all  obtain,  say  in  five  years,  enough  gold  to  maintain  such 
redemption  ? 

Mr.  Eckels.  It  would  depend  on  the  percentage  of  credit  notes 
which  the  banks  were  permitted  to  issue,  and  it  would  also  depend  on 
what  progress  the  United  States  made  in  its  redemption  and  cancella- 
tion. 

Mr.  Fowler.  It  is  based  on  the  funding  of  the  debt,  and  all  that, 
and  coming  down  to  a  practical  situation  ? 

Mr.  Eckels.  Possibly  in  five  years.  It  did  not  take  much  longer 
than  that,  as  I  remember,  to  prepare  for  the  resumption  of  specie  pay- 
ments; and  when  the  day  to  commence  the  same  arrived  everybody 
was  satisfied  that  redemptions  could  and  would  be  made  as  promised 
and  nobody  wanted  redemption. 

Mr.  Fowler.  If  it  is  clear  that  in  this  moment  of  transition,  or  hour 
of  transition,  or  decade  of  transition,  that  could,  in  wisdom,  be  done, 
I  heartily  agree  with  the  single  gold  redemption,  but  it  Avas  only  because 
of  these  notes  that  are  of  themselves  Government  bond  notes,  and 
redeemable  in  gold  at  the  couuter  of  the  banks,  that  I  made  it  optional 
on  the  part  of  the  banks  of  redemption  or  the  clearing  house  to  redeeiu, 
if  they  wanted  to,  40  per  cent  of  the  credit  notes  in  United  States  Gov- 
ernment bond  notes. 

Mr.  Eckels.  More  confidence  would  be  established  if  it  was  known 
the  notes  were  redeemable  in  gold  and  would  not  have  to  go  through  a 
transition  state. 

Mr.  Fowler.  Would  not  that  amount  to  gold  redemption,  when  the 
other  notes  are 

Mr.  Eckels.  But  it  necessitates  an  extra  step.  In  this  extra  step 
you  create  a  possibility  of  doubt  in  tlie  soundness  of  the  note. 

Mr.  Fowler.  But  that  steadies  the  demand  for  the  moment,  if  there 
should  be  an  extra  demand  for  gold.    That  is  all. 

Mr.  Eckels.  The  idea  would  be  that  the  note  holder  would  know  his 
note  was  as  good  as  any  other,  based  on  United  States  Government 
bonds. 

redemption   of    CREDIT    CURRENCY. 

Mr.  Fowler.  Another  question  that  referred  to  your  idea  that  the 
currency  of  the  country  should  be  general,  although  credit  or  security. 
Would  not  the  terms  writteu  and  printed  on  the  note  show  that  one 
was  secured  and  the  other  was  purely  a  credit  note?  Would  not  the 
terms  of  it  show  that? 

Mr.  Eckels.  Not  necessarily.  A  record  might  be  kept  of  the 
percentages. 

Mr.  Fowler.    Do  you  mean  to  say  that  you  would  make  no  distinction 


428  FINANCIAL    AND    BANKING    SITUATION. 

whatever  if  tlie  United  States  was  issiTing-  $500,000,000 — we  will 
assume  tliat  much — secured  by  bonds,  and  $500,000,000  of  credit  notes; 
that  tliere  would  be  no  distinction  between  the  $500,000,000  secured 
and  the  $500,000,000  not  secured  ? 

Mr.  Eckels.  1  do  not  think  it  would  be  necessary;  no. 

Mr.  Fow^LER.  What  notes,  then,  would  be  paid  off  when  the  bonds 
were  retired — any  of  the  $500,000,000  that  were  i)resented  lirst? 

Mr.  Eckels.  Under  a  general  .iiuarantee  of  the  Government  that  it 
would  redeem  all  notes  of  failed  banks 

Mr.  Fowler.  That  brings  up  this  question- 


Mr.  Eckels.  The  Government  might  do  this.  It  would  have  so 
much  security  absolutely  for  such  i)ercentage  of  the  notes.  It  might 
take  ])ossession  of  such  j)ercentage  of  the  assets  necessary  to  reimburse 
it  to  redeem  the  amount  issued  in  the  way  of  credit  currency. 

Mr.  Fowler.  Do  1  understand  you  to  recommend,  then,  that  the 
Government  should  guarantee  all  this,  absolutely,  instead  of  provid- 
ing a  safety  fund  for  its  redemption! 

Mr.  Eckels.  No,  I  haxe  not  recommended  that;  but  I  have  said  that 
under  the  guaranty  of  the  Government  there  would  not  be  any  neces- 
sity of  distinction  in  the  notes.  There  certainly  ought  to  be  a  safety 
fund  for  the  Government's  protection  on  its  guarantee. 

SAl^ETY   FUND. 

Mr.  Fowler.  Which  do  you  believe  would  be  the  sounder  proposi- 
tion in  every  sense,  to  provide  a  guaranty  or  redemi)tion  fund — a 
safety  fund  of  5  per  cent,  which  is  more  than  ndesiuate  in  the  light  of 
experience — or  that  the.Governmen't  should  itself  direclly  guarantee  all 
of  the  notes  of  the  banks  of  the  country? 

Mr.  Eckels.  A  safety  fund  backed  by  a  Government  guaranty 
would  be  perfectly  safe.  The  safety  fund  should  be  sufrtciently  large 
to  nmke  the  Government's  contingent  lial)ility  on  its  guaranty  as 
remote  as  possible.  The  Government  should  have  as  little  to  do  with 
the  matter  as  it  ought,  consistent  with  public  safety. 

Mr.  Fowler.  Is  it  your  opinion  that  ii  should  rest  upon  a  safety 
fund  of  5  per  cent,  or  that  the  Government  should  guarantee  the  notes? 

Mr.  Eckels.  I  should  have  a  safety  fund  and  have  the  guaranty 
beyond,  although  I  do  not  imagine  resort  to  it  would  ever  be  necessary. 

Mr.  Fowler.  I^ecause  it  would  amount  to  nothing.  I  quite  agree 
with  you, 

i\lr.  Eckels,  It  would  be  as  it  is  now.  The  Government's  bonds  are 
deposited  by  the  banks  to  secure  the  notes;  yet  under  the  law  there  is 
l)rovision  that  they  shall  also  be  a  lien  on  the  assets.  The  lien  is  never 
resorted  to  because  ample  protection  is  afforded  to  the  note  holder  in 
the  value  of  the  bonds. 

Ml-.  Fowler.  He  has  the  first  lien  now,  has  ho  not"? 

Mr.  Eckels.  Yes;  but  it  is  never  looked  to.  The  Government  with 
a  safety  fund  would  never  be  called  on  because  of  its  guaranty.  The 
safety  fund  w(mld  take  the  place  of  the  bonds  deposited  under  the 
present  system  and  the  Government's  guaranty  that  of  the  lirst  lieu 
created  on  the  assets.  The  ( lovernment,  however,  for  its  remote  respon- 
sibility ought  to  be  ])rotected  by  a  safety  fund. 

Mr.  Fowler,  That  is  it,  exactly. 

Mr.  IIiLL,  Will  you  pardon  me  if  I  ask  a  question  not  in  relation 
directly  and  six'cilically  to  this  matter  ?  I  would  like  to  have  the 
answer  for  my  |)eisonal  satisfaction,  and  it  is  not  relating  directly  to 
this  mattei'  that  we  have  been  considciing. 


FINANCIAL    AND    BANKING    SITUATION.  429 


COST    OF    COIN    SHIPMENTS. 

Do  yoxi  beiieve  tliat  the  diflference  in  weight  between  gokl  and  silver 
is  of  itself  a  cause  of  sufticient  difiereiice  in  cost  of  shipment,  etc.,  to 
prevent  its  parity  at  any  fixed  ratio"? 

I\Ir.  Eckels.  1  do  not  believe  you  can  ever  maintain  Ibr  monetary 
purposes  a  parity  of  the  metals  at  any  lixed  ratio. 

]\ir.  Hill.  Would  not  that  cause  alone — the  difference  in  the  (.  ost  of 
shipment — be  sufticient  to  prevent  it  being  maintained  at  a  parity  at 
any  fixed  ratio? 

Mr.  Eckels.  The  largest  reason  why  silver  has  gone  down  in  price 
in  the  commercial  world  is  because  it  takes  so  much  of  it  to  answer 
purposes  which  can  best  be  answered  by  a  smaller  quantity  in  gold. 

Mr.  Hill.  The  reason  I  asked  the  question  is  that  I  have  taken 
that  ground  for  the  past  few  months  and  it  was  antagonized  in  the 
Senate  yesterday. 

Mr.  Eckels.  The  reason  you  can  not  get  people  to  carry  silver  dol- 
lars is  the  weight  of  theuL 

Mr.  Hill.  The  express  charges? 

Mr.  Eckels.  Yes;  the  weight,  and  therefore  they  want  to  carry 
paper.  People  wish  the  convenient  thing  in  business,  just  as  they  do 
in  anything  else.  They  wish  the  best  and  not  the  poorest  in  money 
metals.     This  desire  can  not  be  done  away  with  by  statutory  enactment. 

FINANtJIAL    POLICE    POWERS. 

The  CiiAiiiMAN  (Mr.  Brosius  in  the  chair).  Growing  out  of  the 
examination  of  Mr.  Fowler,  there  is  a  question  I  want  to  ask  just  here. 
I  do  not  think  that  on  reading  over  the  transcript  the  Comptroller  will 
be  quite  satisfied  with  his  answer  on  the  subject  of  security  afforded  by 
the  bonds,  and  so  I  want  to  put  this  question:  Assuming  that  some 
banks,  by  mismanagement,  either  through  indolence  or  fraud,  will  break 
up  and  not  have  enough  to  pay  all  their  debts,  do  you  agree  that  it  is  a 
sound  principle  to  secure  first  the  currency  issued  by  the  bank,  rather 
than  the  depositor? 

Mr.  Eckels.  Yes. 

The  Chairman  (Mr.  Brosius).  I  need  not  go  into  the  reason  of  that; 
the  philosophy  of  it  is  very  obvious.  Assumijig  that  the  bank  may 
deposit  these  assets  to  a  greater  or  less  extent,  so  that  when  it  is  closed 
up  it  does  not  have  them  all  and  can  not  i^ay  all  its  debts,  would  not  the 
fact  that  a  ])ortion  of  its  assets  had  been  i)laced  in  the  hands  of  a 
trustee  add  that  much  to  the  security  of  the  creditors,  whatever  kind 
they  were? 

Mr.  Eckels.  Unquestionably 

The  Chairman  (Mr.  Brosius.)  By  as  much  as  these  assets  that  have 
been  j)ut  into  the  hands  of  the  trustee  increased  the  total  assets  that 
were  distributed,  the  depositors  would  get  the  benefit,  would  they  not? 

Mr.  EcjvELS.  Y^es;  they  would  get  the  benefit  of  it 

The  Chairman  (Mr.  Brosius).  The  depositors  would  get  the  benefit 
of  that. 

Mr.  Eckels.  But  it  doesn't  increase  the  total  amount  of  the  assets 
of  the  depositors,  except  as  it  increases  the  amount  which  had  not 
been  stolen 

The  Chairman  (Mr.  Brosius).  Now,  when  you  increase  the  amount 
that  has  not  been  stolen,  do  not  you  add  to  the  security  of  the  creditors  ? 

Mr.  Eckels.  Oh,  yes.  I  might  add,  in  connection  with  all  this,  that 
I  would  not  permit  any  credit  currency  to  issue  without  either  a  safety 


430  FINANCIAL    AND    BANKING    SITUATION. 

fund  or  a  Government  guarantee,  or  both,  and  I  think  it  would  be  wise 
to  have  both, 

Mr.  IIiLL.  Why  sliould  a  Government  guarantee  a  note  hokler  or 
practically  guarantee  the  solvency  of  a  bank  under  a  general  law  any 
more  than  it  should  guarantee  the  solvency  of  a  railroad  under  a 
general  law,  without  the  securities  being  in  its  own  possession,  or  a  dry 
goods  business,  or  any  other  business? 

]\Ir.  Eckels.  I  do  not  think  you  can  place  bank  notes  which  are  to 
circulate  as  and  answer  the  purposes  of  money  upon  the  same  footing 
with  other  evidence  of  indebtedness  issued  in  other  kinds  of  business. 
The  Government,  through  enacted  law,  in  every  country  regulates 
bank-note  issues  because  of  the  great  i)ublic  interests  involved,  the 
number  of  ])eople  using  them  from  day  to  day,  the  transactions  resting 
upon  their  character  and  solvency,  and  because  of  the  necessities  of 
daily  business  c()ini)elling  ]>eople  to  generally  accept  them.  This  regu- 
lation it  can  rightly  carry  to  the  extent  of  guaranteeing  them.  Upon 
these  arguments  are  based  the  correct  and  scientitic  theory  for  the 
Government's  assun)ing  to  regulate  and  care  for  bank-note  issues.  It 
is  exercising  financial  police  powers,  justified  l)y  public  necessity  and 
the  need  of  })ublic  protection.  The  guarantee  of  the  Government 
would  simply  be  a  form  of  this  power,  having  the  efl'ect  of  making  the 
note  holder  feel  absolutely  secure.  The  Government,  through  other 
means  ])rovided,  Avould  be  held  harmless  of  loss. 

Mr.  Fowler.  It  is  really  the  moral  elfectyou  seek,  without  responsi- 
bility. 

Mr.  Eckels.  And  the  safety  fund  would  be  for  the  protection  of  the 
Government. 

Mr.  Calderhead.  I  have  some  questions  to  ask  about  the  subtreas- 
ury  and  clearing  house. 

Mr.  I'^CKELS.  If  Mr.  Calderhead  will  i)ut  his  questions  in  writing  I 
will  be  glad  to  answer  them,  and  the  questions  and  answers  can  go  in 
the  record. 

Mr.  Calderhead.  I  will  be  glad  to  submit  my  questions  in  that  way 
and  have  them,  together  with  your  answers,  go  into  the  record. 

Upon  motion  of  jMr.  Hill,  the  committee,  by  a  rising  vote,  unani- 
mously tendered  its  thanks  to  the  Comptroller  for  his  kindness  in 
appearing  before  the  committee  and  so  fully  and  clearly  replying  to 
the  questions  asked  him. 

Thereupon,  at  1.30  p.  m.,  the  committee  adjourned. 

[The  following  are  the  questions  asked  the  Comptroller  of  the  Cur- 
rency by  Mr.  Calderhead,  in  writing,  with  the  replies  of  the  Comptroller 
thereto.] 

QUESTIONS   BY  MR.  CALDERHEAD. 

Mr.  Calderhead.  What  were  the  respective  amounts  of  legal 
tenders  and  national  bank  notes  in  the  year  1878? 

Mr.  Eckels.  Tlie  legal  tenders  outstanding  on  June  30,  1878,  were 
$3-10,081,01  (I,  and  the  national-banknotes  outstanding  on  June30,  1878, 
were  $322,919,810. 

Mr.  Calderhead.  What  amount  of  each  below  the  denomination 
of  five-dollar  notes'? 

INIr.  l^CKELS.  The  legal  tenders,  denomination  of  one  dollar,  are 
$20,929,874;  legal  tenders,  denomination  of  two  dollars,  $20,910,948; 
national-bank  notes,  denomination  of  one  dollar,  $4,059,830;  national- 
bank  notes,  denomination  of  two  dollars,  $2,820,132. 

Mr.  Calderhead.  And  what  became  of  these  notes  of  less  than  $5? 


FINANCIAL    AND    BANKING    SITUATION. 


431 


Mr.  Eckels.  Iu  188(5  the  Department  began  tlie  redemption  of  one 
and  two  dollar  legal  tender  notes  and  tlie  siibstitntion  of  silver  certiti- 
cates  and  later  of  Treasury  notes  of  like  denominations.  The  issue  of 
national  bank  notes  of  the  denomination  of  one  and  two  dollars  ceiised 
after  eJanuary  1,  1879  (see  sec.  5175,  Kev.  Stat.),  and  were  canceled  as 
l)reseuted. 

Mr.  Oalderhead.  What  ap])arent  effect  on  the  amount  of  national- 
bank  circulation  did  the  coinage  of  silver  <lollars  and  the  issue  of  cer- 
tilleates  under  the  act  of  1878  have"? 

Mr.  Eckels.  The  amount  of  circulation  of  national-bank  note-  since 
1878  has  apparently  varied  with  the  needs  of  trade  and  tlie  ])rotit 
upon  the  same.  From  1878  until  the  year  1882  there  was  a  steady 
increase  in  national-bank  issues.  During  this  period  there  was  an 
increase  in  trade  and  a  conseijuent  demand  for  currency.  The  increase 
in  silver  issues  had  not  become  so  great  as  at  a  later  time.  It  is 
noticeable  that  from  1882  until  1893  the  reduction  in  the  amount  of 
bank  notes  was  very  marked  and  the  increase  in  silver  very  large. 
There  has  been  an  increase  in  the  amount  of  them  since  1893,  during 
which  time  there  has  been  no  issue  of  Sherman  notes.  Undoubtedly 
the  competition  of  silver  and  Treasury  issues  must  tend  to  restrict 
bank-note  issues  whenever  the  competition  is  made  manifest.  The 
variations  in  the  volume  of  bank-note  currency  is  shown  to  have  been 
as  follows  since  1878: 


Xatioiial-bank  notes  outstanding  on  June  30,  1S7S  to  June  30,  1896. 


Tear. 

Amount. 

1           Tear. 

Amount. 

Year. 

Amount. 

1878 

$324, 925,  483 
328,  966,  030 
343,  893,  537 
354,  618,  399 
357,  555,  266 
356,  069,  408 
338,  689,  301 

1885 

ifSie,  852,  618 
308,  488,  358 
278, 893,  513 
252, 179,  641 
211, 172,726 

1892 

.$172,  399,  855 
178  350  397 

1879 

1886 

1893     . 

J880 

1887 

1894     

2U6  854  787 

1881 

1888 

1895 

211,386,927 
225  527  150 

1882 

1889 

1896 

1883 

'  1890  ..     .. 

1S.=;  79!9!  078 

1884 

1891 167.  .'i.50.  POB 

In  order  to  fully  appreciate  the  variations,  I  desire  to  call  your  atten- 
tion to  the  increase  in  the  amount  of  silver  and  silver  certificates  in  the 
years  since  1878. 

The  two  tables  should  be  studied  together. 

Silver  and  silver  certificates  in  circulation  on  June  30,  187S,  to  June  30,  1896. 


Year. 

Amount. 

Year. 

Amount. 

Year. 

Amount. 

1878 

$65,  780,  545 
75,414,713 
79,610,792 
120,778,076 
138,  877,  003 
160,436,865  • 
181,882,732 

1885 

$183,  705, 136 
186,  742,  200 
246, 194,  469 
306,  287,  314 
362,  997,  246 
407,  446, 142 
423,  338,  113 

1892 

1893 

$446,  063,  805 
448  919  176 

1879 

1886  

1880 

1887  

1894 

436  519  102 

1881 

1888 

1895 

431  934  632 

1882 

1889 

1896 

443, 435  312 

1883 

1890          

1884 

1891              .   .   .. 

Mr.  Calderhead.  When  did  the  issue  of  silver  certificates  below 
$10  begin? 

Mr.  Eckels.  The  issue  of  silver  certificates  below  the  denomination 
of  ten  dollars  was  authorized  by  the  act  of  August  4,  1880. 

Mr.  Oalderhead.  What  apparent  eflect  did  the  issue  of  these  have 
on  national-bank  circulation  ? 


432  FINANCIAL    AND    BANKING    SITUATION. 

•  Mr.  Eckels.  My  reply  to  a  former  question  covers  tliis. 

Mr.  (-ALDER UEAD.  AVliat  amount  of  silver  dollars  and  silver  certifi- 
cates were  issued  under  the  Bland-Allison  Act  of  1878,  and  wliat  appa- 
rent effect  did  this  have  on  the  national-bank  circulatioif? 

Mr.  PjCKELS.  The  total  coinage  under  the  Bland-Allison  Act  of  1878 
amounted  to  8378,1(>(!,79.').  Silver  certificates  issued  under  that  act 
(June  30,  3890),  a301,53!),751. 

I  can  only  make  the  same  reply  heretofore  given  as  to  the  latter  ]iart 
of  the  question, 

IMr.  Calderhead.  AVhat  were  the  respective  amounts  of  legal  ten- 
ders, national  bank  notes,  and  silver  certificates  m  circulation  in  1890, 
at  the  time  the  silver  purchasing  act  of  that  year  was  passed? 

]\Ir.  Eckels.  The  legal  teuder  notes  in  circulation  on  June  30,  1800, 
were  $323,046,82(1:  the  national-bank  notes  in  circulation  -si 8 1,390, 823; 
the  silver  certificates  in  circulation  §297,210,043. 

Mr.  Calderhead.  What  amount  of  Treasury  notes  were  issued 
under  that  act! 

Mr.  Eckels.  The  Treasurv  notes  issned  under  the  act  of  1890  were 
$155,931,002. 

Mr.  Calderhead.  What  amount  of  silver  dollars  and  silver  certifi- 
cates have  been  issued  under  that  act? 

Mr.  Eckels.  Silver  dollars  issued  under  the  act  of  1890  were 
$61,201,026.  There  is  no  record  of  the  silver  certificates  issued  under 
the  act  of  1890,  but  when  these  silver  dollars  are  returned  silver  cer- 
tificates are  issued  thereon  in  the  same  manner  as  other  silver  dollars, 
and  no  separate  account  is  kept  of  these  certificates. 

Mr.  Calderhead.  What  ettect,  apparently,  did  the  issue  of  Treas- 
ury notes  under  that  act,  and  the  silver  and  silver  certificates,  have 
upon  the  amount  of  national-bank  circulation  ? 

Mr.  Eckels.  I  have  already  answered  this,  giving  mj^  judgment  of 
the  matter. 

Mr.  Calderhead.  When  did  the  subtreasury  begin  to  pay  its  bal- 
ances at  the  clearing  house  in  New  York  in  gold,  and  how  long  did  it 
continue  to  do  so  ? 

Mr.  Eckels.  From  September,  1880,  to  September,  1882,  payments 
were  made  in  gold  coin,  United  States  notes,  and  silver  certificates. 
From  October,  1882,  to  January,  1886,  in  United  States  notes  and  gold 
certificates,  except  in  February,  1885,  when  $100,000  silver  certificates 
were  used,  and  in  August,  1885,  when  $2(50,000  gold  was  used;  from 
February  to  July,  inclusive,  1886,  United  States  notes  were  used  exclu- 
sively; from  August,  1886,  to  July,  1890,  United  States  notes  and  gold 
certificates  only  were  used  ;  from  August,  1890,  to  July,  1892,  payments 
were  made  in  United  States  notes,  Treasury  notes,  and  gold  certificates, 
with  the  excoi)tion  of  about  $62,000  of  silver  certificates  used  in  the 
Spring  of  189J ;  from  August,  1892,  to  June,  1893,  United  States  and 
Treasury  notes  were  nsed  in  addition  to  about  nine  million  of  gold  cer- 
tificates during  the  months  of  October  and  November,  1892,  and  .lan- 
uary,  1893;  from  July,  1893,  to  February,  1894,  the  settlements  we're 
mainly  in  gold  coin  and  some  United  States  and  Treasury  notes.  The 
use  of  gold  coin  which  began  in  July,  1893,  and  closed  in  February, 
1894,  was  the  only  time  since  August,  1885,  to  September,  1896,  that  it 
occurred;  from  March,  1894,  to  December,  1894,  United  States  and 
Treasury  notes  were  nsed,  and  since  that  date  United  States  notes  only. 

Mr.  Calderhead.  Did  the  stock  of  gold  increase  or  diminish  in  this 
country  during  those  years,  and  how  much? 

Mr,  J'^CKELS.  The  stock  of  gold  in  the  country  for  various  reasons 


FINANCIAL    AND    BANKING    SITUATION. 


433 


increased,  from  June,  1893,  to  January  31,  1894,  $123,724,216.  The 
increase  i)ri()r  to  the  dates  mentioned  was  very  hirge  because  of  foreign 
trade  and  investments  from  abroad  and  domestic  production. 

Mr.  Calderhead.  Wliat  caused  the  flow  of  gold  to  this  country  dur- 
ing those  years? 

Mr.  Eckels.  The  inflow  of  gokl  to  this  country  during  the  specific 
period  referred  to  in  my  previous  answer,  viz,  from  June,  1893,  to  July, 
1894,  was  largely  the  result  of  the  stringency  of  money  causing  high 
rates  of  interest  in  this  country.  During  the  whole  period  of  time  when 
the  increase  of  gold  has  gone  on  in  this  country,  it  has  come  from  pro- 
duction of  our  mines,  balances  paid  in  gold  in  trade  and  commerce, 
amounts  brought  or  sent  here  from  abroad  for  investment,  and  through 
the  purchase  of  our  securities  by  those  living  abroad. 

Mr.  Calderhead.  What  proportion  of  the  revenue  from  customs 
duties  was  paid  in  gold  each  year  from  1878  to  1892,  and  in  what  was 
the  remainder  paid? 

Mr.  Eckels.  I  can  only  give  as  my  answer  the  statistics  as  shown 
by  the  report  of  the  Treasurer  of  the  United  States. 

Pei'centage  of  gold  coin,  etc.,  received  from  customs  at  Neiv  York  in  June,  1878,  to  1896. 


Tear. 


1878 
1879 
1880 
1881 
1882 
1883 
1884 
1885 
1880 
1887 
1888 
ISK'J 
1890 
1891 
1892 
1893 
1894 
1895 
1896 


Gold. 


5.4 

.6 

48.8 

39.3 

68.7 

3.3 

3.1 

.  7 

.7 

1.3 

!i 
.1 

.2 
.  2 

o' 

1.9 
.1 
0 


Silver. 


United 
State.s 
notes. 


1.8 
93 
18.2 

3.6 

7.8 

7 
21.2 
33.  3 
81.7 
13.8 
11.1 
18.8 

2.7 
44.6 
26.8 
53 

6.8 
60.2 
40 


Treasury 

Gold  rer- 

notes. 

tificates. 

0 

60.1 

0 

0 

0 

0 

0 

0 

0 

0 

0 

69.4 

0 

40 

0 

32.5 

0 

4.8 

0 

72.6 

0 

73.  5 

0 

74.5 

0 

94.5 

28.9 

12.3 

49  1 

8 

35 

0 

7.6 

0 

3.4 

0 

1.3 

0 

Silver 
certifi- 
cates. 


32.6 
6.2 
32.9 
57 
23.4 
20.2 
35.6 
33.  3 
12.6 
12 
14.4 
6.5 
2.7 
14 
15.9 
12 

83.6 
36.2 
58.7 


I  also  call  your  attention  to  Table  No.  50,  j^yages  142  to  144,  Annual 
Eeport  of  the  Treasurer  of  the  United  States,  1896. 

Mr.  Calderhead.  How  were  the  payments  in  gold  of  the  balances 
from  the  subtreasury  at  the  clearing  house  suspended,  and  when! 

Mr.  Eckels.  From  1882,  the  time  of  the  issue  of  gold  certificates, 
until  August,  1890,  the  payments  of  balances  at  the  clearing  house  were 
made  almost  entirely  in  gold  certificates,  with  the  exception  of  a  few 
months  in  1884  and  1886,  when  they  were  made  in  United  States  notes. 
After  the  issue  of  the  Sherman  notes  under  the  law  of  1890,  in  the 
month  of  August  they  were  for  the  first  time  paid  in  settlement  of  such 
balances.  Thereafter  they  formed  a  very  large  portion  of  such  pay- 
ments until  the  repeal  of  the  Sherman  act  in  1893. 

The  suspension  of  the  payment  of  gold  certificates  and  gold  coin 
occurred  first  in  the  month  of  August,  1892,  to  be  resumed  again  in  a 
comparatively  small  amount  in  October  and  xsTovember  of  that  year 
and  discontinued  entirely  in  December  of  that  year.  A  few  were  used 
in  January,  1893,  but  none  have  been  used  since  that  time  for  this 
purpose. 

The  payment  of  gold  coin  for  this  purpose  in  the  autumn  and  early 

CUR 28 


434  FINA'NCIAL    AND    BANKING    SITUATION. 

winter  of  1803  and  1894  was  caused  by  the  currency  famine  of  that 
year.  The  receipts  of  gold  certilicates  and  gold  coin  from  the  banks 
had  fallen  from  about  95  per  cent  in  February,  March,  and  April,  1890, 
to  12  per  cent  in  June,  1891,  and  thereafter  continued  to  fluctuate,  ris- 
ing to  0(3  per  cent  in  January,  1S92,  but  rapidly  falling  thereafter  to 
but  3  per  cent  in  September,  1892;  thence  falling  to  nothing  in  May 
and  June,  1893.     It  has  continued  at  nothing  since. 

During  the  currency  panic  gold  coin  reached  58  per  (;ent  of  the  total 
recei])ts  of  customs  duties  in  September,  1893,  but  practically  ceased 
within  five  mouths  thereafter. 

It  is  thus  evident  that  the  suspension  of  payment  of  gold  in  settle- 
ment of  clearing-house  balances  was  the  legitimate  outcome  of  a  situa- 
tion caused  by  the  drying  up  of  gold  receipts.  These  balances  were 
paid  in  gold  by  the  Government  a  long  time  after  the  banks  had  ceased 
to  pay  gold. 

The  last  payment  of  gold  coin  was  in  February,  1891.  It  had  at  that 
time  only  paid  gold  coin  for  a  period  of  eight  months,  which  was  after 
an  interval  of  eight  years.  These  gold  payments  resulted  from  the 
currency  famine  then  being  experienced. 

Mr.  Calderhead.  If  the  payment  of  these  balances  had  continued 
to  be  made  in  gold  from  1892  to  1895,  would  the  Treasury  have  been 
exposed  to  danger  of  losing  its  reserve  fund  any  more  than  it  actually 
has  been  exposed  during  that  time? 

Mr.  Eckels.  It  might  have  been  lost  more  rapidly,  but  the  reason 
the  United  States  stopped  paying  gold  was  because  its  gold  income  had 
practically  ceased,  and  it  was  dangerously  near  the  reserve  limit.  It 
had  ceased  because  the  banks  and  the  banks'  customers  wished  to  hoard 
their  gold,  having  doubt  as  to  the  financial  credit  of  the  country. 
This  condition  came  about  largely  through  the  possibility  of  the  Gov- 
ernment not  being  able  to  maintain  gold  payments. 

Mr.  Calderhead.  Would  it  not  have  been  just  as  easy  to  maintain 
the  reciprocal  relations  of  the  subtreasury  with  the  clearing  house 
of  paying  balances  in  gold  and  receiving  revenue  in  gold  as  it  was  to 
maintain  the  Treasury  during  the  last  four  years'? 

Mr.  Eckels.  I  do  not  see  the  exact  relations  between  the  various 
parts  of  this  question.  It  seems  to  me  immaterial  whether  the  gold 
obtained  by  the  Treasury  was  used  to  pay  clearing-house  balances  or 
to  redeem  outstanding  notes  of  the  Government.  Jf  the  balances  were 
paid  in  United  States  notes  they  could  at  once  be  presented  for  redemp- 
tion in  gold. 

Mr.  Calderhead.  If  the  revenue  were  suflBcient  now  for  the  current 
expenses  of  the  Government,  what  reason  would  prevent  resuming 
that  reciprocal  relation  between  the  subtreasury  and  the  clearing  house  f 

Mr.  Eckels.  I  do  not  look  upon  the  volume  of  the  revenue  receipts 
as  governing  in  this.  It  is  the  volume  of  receipts  and  payments  of  all 
kinds  in  all  trade  which  governs,  and  not  merely  the  Government's 
revenue  receii)ts.  If  the  banks  again  get  a  gold  income  from  the  ordi- 
nary course  of  business,  which  would  indicate  a  cessation  of  hoarding, 
and  they  would  make  gold  })ayments  to  the  United  States,  the  United 
States  could  then  settle  its  balances  in  gold.  But  this  must  be  through 
the  natural  course  of  business,  and  not  forced.  It  can  not  come  if  con- 
fidence is  lacking  in  the  (Jovernment's  credit. 

Ordinarily,  in  the  course  of  business  the  expense  of  handling  gold 
coin,  where  there  is  no  question  of  the  paper  being  of  equal  and  inter- 
changeable vabu;  Avith  gold  coin,  is  such  that  the  ])eoi)le,  to  save 
expense  in  handling,  wisli  })a})er  instead  of  gold.  This  causes  the  gold 
to  go  to  the  banks,  and  from  the  banks  to  the  Treasury.     The  element 


FINANCIAL    AND    BANKING    SITUATION.  435 

of  confidence,  of  course,  enters  into  this,  as  does  the  element  of  a  wish 
to  lessen  the  expense  attendant  upon  monetary  transactions. 

Mr.  Calderhead.  If  this  relation  were  resumed  and  maintained,  is 
there  any  probability  that  national  banks  would  increase  their  circula- 
tion, either  under  the  present  law  or  under  either  of  the  bills  introduced 
by  Mr.  Walker,  Mr.  Hill,  or  Mr.  Fowler? 

i\Ir.  Eckels.  The  amount  of  currency  taken  out  under  any  bank  bill 
would  depend  on  the  margin  of  profit  to  the  issuing  bank.  It  would 
be  controlled  by  the  conditions  of  trade,  the  confidence  which  the  notes 
issued  enjoyed  at  the  hands  of  the  people,  etc.  It  would  not  be  gov- 
erned by  any  one  cause.  I  do  not  think  the  single  factor  stated  would 
have  a  controlling  influence,  if  any. 

Mr.  Calderhead.  If  the  revenue  were  sufficient  for  the  current 
expenses  of  the  Government,  "what  present  or  future  danger  is  there  of 
a  loss  of  gold  from  this  country  sufficient  to  prevent  the  subtreasury 
and  the  clearing  house  from  making  and  receiving  payments  in  gold! 

Mr.  Eckels.  The  same  danger  that  existed  from  1888  to  1893,  when 
the  gold  reserve  fell  from  $lil9,0o9,232  to  $80,891,000.  The  monetary 
system  is  at  fault,  and  until  it  is  remedied  the  banks  will  not  get  a  gold 
income.  The  maximum  of  the  gold  reserve  was  the  former  figures,  but 
on  February  11,  1895,  it  had  fallen  to  -$11,310,181.  Such  a  decline  only 
could  have  been  brought  about  by  the  Government  undertaking  to 
maintain  a  doubtful  monetary  system.  It  is  a  matter  which  is  inde- 
l^endent  of  revenue  and  can  not  be  remedied  by  mere  revenue  receipts. 

Mr.  Calderhead.  If  this  relation  were  resumed  and  maintained 
without  the  purchase  of  gold  except  the  procuring  of  it  in  the  ordinary 
course  of  trade,  would  not  the  whole  expense  to  our  peojjle  of  carrying 
our  money  be  the  interest  upon  the  gold  reserve  fund  and  the  cost  of 
the  national-bank  currency? 

Mr.  Eckels.  I  do  not  deem  it  possible  to  procure  gold  in  the  ordi- 
nary course  of  trade  under  present  conditions.  It  certainly  could  not 
be  so  procured  during  the  time  when  the  expense  of  the  system  has 
been  most  manifest.  Gold  hoarding  is  always  manifest  at  such  times 
as  there  is  a  financial  depression,  growing  out  of  doubt  as  to  the  sta- 
bility of  the  monetary  system.  The  result  of  this  hoarding  is  to  take 
gold  out  of  the  channels  of  trade,  and  it  can  not,  therefore,  be  gotten 
into  the  Treasury.  Extraordinary  methods  in  the  form  of  bond  issues 
have  to  be  resorted  to,  with  attendant  expense  and  doubt.  The  expense 
falls  upon  the  people  in  the  way  of  increased  taxation,  and  the  doubt 
effects  them  in  disturbing  all  business  relations  with  consequent  loss. 
Of  course,  there  is  loss  of  interest  on  the  gold  reserve,  and  there  is 
loss  to  business  interests,  otherwise,  by  depriving  them  of  the  volume 
of  the  reserve  when  that  amount  is  needed  in  business.  The  direct  and 
indirect  loss  to  business  through  a  false  system,  breeding  as  it  does, 
panic  and  speculation,  can  not  be  calculated. 

Mr.  Calderhead.  What  per  cent  on  the  whole  stock  of  our  money 
would  this  be  ? 

Mr.  Eckels.  It  is  impossible  for  me  to  answer  the  question  as  pro- 
pounded. 

Mr.  Calderhead.  If  the  greenbacks  and  other  Treasury  notes  were 
all  retired  this  year,  what  amount  of  reserve  would  be  necessary  to 
maintain  the  silver  and  silver  certificates  at  par '? 

Mr.  Eckels.  That  would  depend  largely  ui)on  the  provision  govern- 
ing such  coin  and  certificates.  No  percentage  is  large  enough  to  protect 
under  any  and  all  circumstances  issues  which,  when  once  redeemed,  are 
reissued  for  any  puri^ose  without  first  requiring  a  return  of  the  coin 
they  represent. 


INDEX  TO  STATEMENT  OF  HON.  JAJfES  H.  ECKELS. 

(Page  231.) 

Page. 

Accumulation  of  money  in  largo  centers 368 

A<lvisers,  ex])ert 323 

Agencies,  reil«'ni])tion 277 

Agent  of  lianks,  Trensnry  as  an 339 

Agricultural  districts,  present  system  works  hardship  to 254 

j  nst  grievance  of 255 

Appreciation  of  gold 303 

Arts,  gold  in  the 302 

Assets  as  a  basis  for  circulation 278,  282 

con  vert  ible 376 

notes  a  first  lien  upon 282, 424 

uotes  issued  against 317,  388, 419 

(See  also  Credit  currency.) 

Austria  and  the  gold  standard 289 

Baltimore  plan 409 

bankers  deserted  the 370 

Baring  failure 267,271,298 

Bank  act  (national)  original  purpose  of 316 

suggcete<l  auumdment  of 312 

depositors  in  this  country,  number  of 300 

managers,  ability  of 281 

note  redemption,  cost  of 306 

notes  issued  against  credit 242 

in  lieu  of  legal  tenders 382 

outstanding,  1878  to  1896 431 

of  Enjgland,  gold  holdings  of 371 

locked  up  in 301 

rate  of  discount  of 273, 301 

panics  in  other  countries 412 

reserves 284 

Banker,  every  French  peasant  his  own 299 

Government  as  a 248 

Bankers  deserted  the  Baltimore  plan 370 

Bank  ing  before  the  war 236 

business,  Government  divorced  from 356 

facilities,  essential  to  gold  payments 294 

in  cities 254 

functions,  relieving  Government  of 328 

greenbacks  as  a  basis  for 241 

must  be  made  profitable 389 

system  can  not  bo  conducted  on  sentiment 331 

Treasury  divorced  from 321 

Banks,  amount  of  deposits  in 270 

are  conducted  for  profit 243 

assets  of,  as  a  basis  for  currency 278 

combination  by  the 366 

could  maintain  gold  payments 405 

daily  reports  of  condition  of 320 

dependent  on  general  ])ros]>t'rity 241 

established  in  small  communities 251 

miscellaneous  stocks  Iield  by 396 

no  more  needed 377 

private,  issuing  notes  of 252 

profits  to,  on  circulation 252,321 

really  maintain  pari  ty  of  metals 334 

redemption  safely  transferred  to 337 

safer  and  better  redemption  by 330 

I 


II  INDEX. 

Page. 

Banks  should  assume  current  redemption  of  notes 235 

solvency,  popular  idea  of 308 

Treasury  as  an  a^ent  of 339 

withdrawal  of  gold  from 332 

with  small  ca))ital,  authorizing 381 

would  contract  and  expand  currency 241 

would  maintain  gold  redemption 240 

IJills  before  the  committee 233 

iJill  11.  K.  171 314,  316,  317,  318,  319,  320,  321 ,  322,  324 

eflcct  of,  on  silver 342 

opinion  of  Comptroller  on 357 

persuasive  and  not  mandatory 337 

provisions  of,  advocated  bv  conventions 33ti 

H.  K.  1999,  text  of ' 358 

U.K.  7247 386 

11.  K.  9823,  text  of 378,379,380,381,382,383 

Bimetallic  standard,  elements  essential  to  maintaining 304 

Bimetallism 303 

an  imi)ossibility 304 

Biiiietallists,  tbeory  of  the 262 

Bismarck  on  the  supjilv  of  gold 301 

Bland- Allison  Act .' 239,244 

coinage  under 432 

effect  of 261,-322 

Bond  issue  authorized,  gold 379 

of  the  Harrison  Administration,  i)roposed 400 

recent 2J5,  260 

Bonds  as  a  basis  for  currency  notes 242 

circulation  increased  to  par  value  of 246,  279,  284,  378,  410 

secured  by 361 

issuing,  to  retire  greenbacks 363 

investing  safety  fund  in 365 

notes  i  ssued  against  State  and  municipal 390 

light  of  Secretary  of  the  Treasury  to  issue 249 

sold  to  meet  current  ex])ense8 261 

State  and  municipal,  held  by  banks 395 

value  of,  increased  by  issue  of  notes  to  par  value  of 283 

Bran ch  ban k s 250, 252,  256,  275 

Brazil  and  the  gold  standard 293 

Brokerage  shoj),  the  Treasury  a 392 

Bullion  in  the  Trcasurj',  utilizing  the 373 

Calderhead,  questions  submitted  in  writing  by  Mr 430 

Call  dcjiosits  counted  as  a  reserve 256 

Canadian  banking  system 246 

Carlisle  bill,  tlie  (see  aho  bill  II.  K.  1999) 399 

Ca})ital,  angregated,  not  dangerous 328 

authorizing  banks  with  small 381 

laborer's,  his  ability  to  work 265 

Cause  of  hard  times 232 

Causes  of  present  danger 388 

Certilicates,  clearing-house 326 

Charters,  s])ecial 426 

Chase,  Salmon  P.  (Secretary  of  the  Treasury)  disbelie\ed  ia  lirst  Treasury- 
note  issue 237 

Chcajuiess 322 

Checks  and  drafts,  enormous  use  of 300 

create  a  currency 310 

Chicago  banks  in  the  panic  of  1893 272,  315 

Chile  and  the  gold  standard 293 

Circulating  notes,  issue  of 362 

Circulation  against  assets,  limited 282 

assets  of  banks  as  a  basis  for 278 

(See  also  Credit  currency.) 

clearing-house 326 

emergency 243,  326 

increased  toi)ar  value  of  bonds 246,279,284,378,410 

no  i^rofit  to  banks  on 252 

of  silver  coin 425 

profit  to  banks  on 321 


INDEX.  Ill 

I'ago. 

Circulation,  rediiciug  the 365 

restriction  of 826 

retirement  of 3S1 

secured  by  bonds 361 

security  of 363 

silver  forced  into 313,  369 

tax  on 279,  364,  378,  406 

Civil  war  conducted  on  a  gold  bjisis 330 

Clearing-house    circulation 326 

certificates 327 

districts 415 

payments  of  1893 315 

provisions 323 

suspension  of  gold  payments  at  New  York 433 

Coe,  George  S.,  jiroposition  of 237 

Coinage,  silver,  agitation  ended 353 

under  Bland- Allison  Act 432 

Coin  payments 349 

shipments 429 

Commercial  banks,  province  of 275 

Committee,  province  of  this 266 

report,  unanimous,  essential 324 

Comptroller  of  the  Currency,  discretion  allowed  the 332 

opinion  of  the,  on  H.  R.  171 357 

purpose  of  recommendations  of 313 

recommendations  by 312 

vote  of  thanks  to 430 

Compulsory  note  issues 279,  280 

Congestion  of  currency  in  New  York 255,  256 

large  centers 351 

Constitutionality  of  jiroposed  legal  tenders 353 

Consulting  board  under  Fowler  bill 411 

Contraction,  funding  would  not  cause 234 

Convertible  assets 376 

Corn  crop  in  Iowa 252 

Cost  of  bank-note  redemption 306 

currency 318 

redemption  of  currency 305 

transjjortation  of  currency 306 

Credit,  bank  notes  issued  against 242 

currency 247,  277,  397,  408 

as  a  counterbalance 283 

in  tbe  United  States 269,  414 

r('dem]ition  of 427 

xacilities  in  various  countries 287 

money,  imprisoning  the 336 

of  Russia 288 

of  the  Government 243,  333,  414, 421 

Creditor  nations 273 

Currency,  additional,  demand  for  located 310 

(bank)  should  not  be  a  legal  tender 256 

checks  create  a 310 

congestion  of,  in  New  York 255,  256 

cost  of 318 

redemption  of 305 

transportation  of 3i  16 

credit,  as  a  counterbalance 283 

greenbacks,  an  expensive 401 

bonds  as  a  basis  for 242 

profits  of,  vary  day  by  day 318 

redundancy  of 257,  270 

scarcity  of,  in  rural  sections  . 250 

secured,  not  elastic 314 

silver,  ]  iresent  amount  of 352 

three  kinds  of,  provided 338 

volume  of 366.431 

not  the  question 232 

Current  expenses,  bonds  sold  to  meet 261 

redemption 406 


IV  INDEX. 

Page. 

Curreut  redemption,  l)auk8  should  assume 235 

place  of 288 

responsibility  for 327 

ridding  the  Treasury  of 316 

Treasury  relie\ed  oi' l78 

and  iinal  redemiition 1)46 

Customs  payments  in  gold 133 

cessation  of 333 

Danger,  causes  of  present 388 

of  the  ])resent  system 235 

Debtor  nations -oi) 

United  folates  the  greatest  of 296 

Demand  for  additional  cnrreney  located 310 

Depositors  (bank)  in  this  country,  number  of 300 

insuring,  against  loss 412 

Deposits  in  the  banks,  amount  of 270 

reserve  liekl  against 270 

Director  of  the  Mint,  report  of,  for  1895.. 258,  259,  263, 268,  270,  272,  284,  28<S,  289,  291, 293 

Disaster  esca])ed  by  a  narrow  margin 235 

Discount,  rates  of,  of  Bank  of  England 273,  :;01 

Discussion  of  II.  R.  7247 386 

Disturbances  ])08sible  under  the  best  system 312 

Effect  of  Sherman  law 238 

Elasticity 322,363 

Election  of  1896 239.423 

Emergency  circulation 243,  326 

Endless  chain 870 

Exchange,  maintaining  the  par  of 266 

Expensive  linancial  system 324 

Expense  of  present  system 234 

Experience,  teachings  of 298 

Expert  advisers 323 

Export  of  gold.     (Sec  Gold.) 

Europe,  threat  of  war  in 298 

Facilities  of  banking  in  cities 254 

Field  of  Secretary  of  the  Treasury 274 

Final  redemption,  current  and 346 

Financial  depression,  long- continued 232 

legislation  of  1890,  effect  of 238 

the  war 237 

police  powers '    429 

system,  expensive 324 

of  United  States,  worst  of  any  leading  nation 322 

trouble,  source  of  our 233 

First  lien  upon  assets,  notes  a 282,424 

Fiscal  operations  can  not  be  conducted  on  sentiment 245 

Foster,  Charles,  Secretary  of  the  Treasury,  on  gold  payments 333 

French  peasant  his  own  banker,  every 299 

Function  of  metallic  money 267 

Funding  would  not  cause  contraction 234 

Gallatin,  Albert  (Secretary  of  the  Treasury) 251 

Geographical  location  of  gold 350 

Gold  and  silver,  rc(l<Mni)tiou  of  notes  in 383,  403 

ai)preciatinn  of 303 

a  stable  measure  of  value 303 

a  valuable  ])roperty  to  have 302 

basis,  civil  war  conducted  on  a 330 

Bismarck  on  the  supply  of 301 

bond  issues  authorized 379 

can  alw.'iys  be  obtained 272,  .302 

coin  in  circulation  in  Pacitic  States 270 

customs  payments  in 433 

cessation  of 333 

export  and  demand  for,  effect  of  wheat  fainino  on 273 

exports  of 286.  296 

a  beneficial  thing 296 

affci-t  securities  in  New  York  market 297 

geographical  location  of 350 

goes  where  needed 250 


INDEX.  V 

Page. 

Gold  hoarding 244,  286,  312 

holdings  of  J{ank  of  Mnnlaiid o71 

in  small  cities,  amount  of 351 

the  arts 302 

Treasury,  increase  of 370 

United  States,  increase  of 286, 433 

world,  location  of 272 

locked  np  in  the  Bank  of  England 301 

only,  eft'ect  of  redeeming  in 311 

notes  rodceniable  in 426 

payments  at  New  York  clearing  house 432,  433 

banking  facilities  essential  to 294 

"banks  could  maintain 405 

cause  of  8a8i)ension  of 333 

Secretary  Foster  on 333 

during  the  war 237 

Louisiauamaiutained 237 

of  notes,  maintaining ,S40 

production  of,  in  18;t6 301 

increased  yearly 295 

redemption,  banks  would  maintain 240 

of  notes,  maintaining 339 

silver  redeemable  in 244.  348 

standard  of  value 354 

foreign  countries  and  the 288.289,293 

single 239 

stock  of  the  United  States 269 

supply  ample 267 

surplus  of,  in  several  countries 298 

the  recognized  .standard 264 

visible  .'. 301 

withdrawiil  of  from  banks 332 

world  searching  for 301 

Government  as  a  banker 248 

redemption  agent 338 

credit  of 414,  421 

impaired 243,  333 

can  create  values,  idea  that 247 

divorced  from  banking  bnsiuess 356 

note  issuing  not  a  function  of 248 

relieving,  of  banking  functions 328 

supervision,  notes  issued  under 406 

Greenbacks  an  expensive  currency 401 

as  a  basis  for  l)anking 241 

dangerous,  are  the 400 

get  rid  of  the 235 

imprisoning  tlio 372 

issuing  bonds  to  retire 363 

protests  against  the  retirement  ot 234 

Grievance  of  agricultural  sections,  just 255 

Hard  times,  canse  of  the 232 

Harrison  Administration,  proposed  bond  issiie  of 400 

Hoarding  gold 244,  286,  312 

Home  market,  creating  a 375 

Increase  of  gold  in  the  Treasury 370 

Insuring  depositors  against  loss 412 

Interest,  rates  of 318 

in  Tennessee 368 

Iowa,  failure  of  corn  crop  in 252 

Issuing  notes  of  private  banks 252 

Issne  of  legal  tenders 325 

Italy  and  the  gold  standard 293 

Laborer's  capital  his  ability  to  Avork 265 

Legal  tender  act,  decision  of  Supreme  Court  on 354 

bank  currency  should  not  lie  a 256 

tenders,  bank  notes  issued  in  lieu  of 382 

constitutionality  of  proposed 353 

issue  of 325 

popular  delusion  concerning 371 


VI  INDEX. 

Page. 

Legal  tenders,  retirement  of 353,  379 

lirst  step  toward  relief 246 

Lei:;islation  needed 232 

])eo]>lc  demand  new  financial 386 

of  1890,  financial 238 

of  tiie  war,  financial 237 

Loaning  on  real  estato 375 

Louisiana  maintained  gold  payments 237 

McCulloeh's  bank 259 

Maintaining  a  bimetallic  standard,  elements  essential  to 304 

Measure  of  value,  gold  a  stable 30:^ 

Metallic  money,  decreasing  use  of 2sr) 

function  of 267 

no  demand  for 285 

Mint.  Koport  of  Director  of.     (Sec   Director.) 

Monetary  system  of  the  United  States,  doubtful 435 

Money  accumulates  in  large  centers 368 

redemptive,  defined 347 

Morrill,  J.  S.  (Senator) ,  on  tirst  Treasury  note  issue 237 

Morris,  Gouverneur,  on  the  Constitution 356 

National  credit,  establish 233 

National  banks.     ((S'ee  Banks.) 

Note  issues,  compulsory 279,  280 

of  State  banks 276 

Note  issuing  not  a  function  of  Government 248 

redemjitiou ^25 

Notes  a  first  lien  on  assets 282,  424 

Notes,  current  redemption  of.     (*S'fe  Current  redemption.) 

issued  against  assets 319,  388,  419 

(See  also  Credit  currency.) 

State  and  municipal  bonds 390 

under  Government  supervision 406 

issue  of  circulating 362 

maintaining  gold  payments  of BiO 

of  private  banks,  issuing 252 

redeemable  in  gold  only 426 

redeemed  in  silver 392 

silver  in  place  of  small 372 

two  classes  of 389 

Original  purpose  of  the  national  bank  act 316 

Overtrading ^32 

impedes  business 300 

Pacific  States,  gold  coin  in  circulation  in 270 

Panic  of  1893 238,240 

Chicago  banks  in 272 

suspension  in 314 

])OSsibilities  of  another 371 

Panics  in  other  countries 412 

Paper  money  of  the  United  States 269 

world,  uncovered 263 

various  countries,  uncovered 257,  290,  292,  293 

Parity,  strain  of  maintaining  pa])er  at  a 251 

of  metals,  banks  really  maintain 334 

Par  of  exchange 263 

lost  since  1873 266 

maintaining  the 266 

People  demand  now  financial  legislation 386 

Place  of  redemi)tion 319,3.32 

Police  powers,  financial 429 

Post])onement  not  wise 387 

Premises,  wrong 266 

Present  system,  danger  of 235 

expense  of 234 

responsible  for  high  rates  of  interest 252 

works  haTdshi])  to  agricultural  districts 254 

Production  of  gold,  increased  yearly 295 

in  1896 ! 301 

Profit,  banks  are  conducted  for 243 

on  circulation,  if  increased  to  p.ir  value  of  bonds 284 


INDEX.  VII 

Page. 

Profit  on  circuhition  to  banks -. 321 

no 252 

Profits  on  currency  vary  day  by  day 318 

Projjoskions  lor  relief 388 

Protests  a ijainst  retirement  of  greenbacks 234 

Province  of  commercial  banks 275 

til  is  committee 266 

Race,  superiority  of 266 

Kate  of  discount  of  Bank  of  England 273,  301 

interest 318 

in  Tennessee 368 

])resent  system  responsible  lor  high 252 

Real  estate,  loaning  on 375 

ReceTit  bond  issues 260 

Kecoramendations  of  the  Comptroller 312 

jjurpose  of 313 

Redeeming  in  gold  only,  effect  of 311 

silver  in  gold 416 

Redemption  agencies 277 

agent,  (iovernment  as  a 338 

by  banks,  safer  and  better 330 

coin  required 309 

cost  of  bank  note. 306 

current.     (<S'efi  Current  redemption.) 

districts 310,  407 

final 309 

f un d,  5  per  cent 285,  288,  309,  320,  362,  367 

gold  and  silver 403 

method  of,  not  changed 339 

note 425 

of  credit  currency 427 

currency,  cost  of 305 

notes  i  n  gold  and  silver 383 

maintaining  gold 339 

place  of -^ 319,332 

present  method,  sure  and  safe 329 

safe  but  expensive 329 

safelv  transferred  to  banks 337 

two  kinds  of 334,420 

ultimate,  a  matter  of  fancv 285 

under  Suffolk  system ' 305,  307,  310 

Redemptive  money  defined 347 

Redundancy  of  the  cuiTency 257,  270 

Relief,  legal-tender  retirement  the  first  step  toward 246 

propositions  for 388 

Remedy,  branch  banks  a 256 

Repeal  of  State  bank  tax 407 

Report  of  Director  of  the  Mint.     (See  Director.) 

Secretary  of  the  Treasury 260 

Reports  of  condition  of  banks,  daily 320 

uniformity  of,  an  advantage 374 

Repudiation 240 

Reserve,  a  safe 271 

call  deposits  counted  as  a 256 

held  against  deposits 270 

money 369 

needed,  estimating  the  amount  of 284 

Reserves,  bank 284 

use  of 320,324 

Resolution  offered  by  Mr.  Brosius 231 

Retirement  of  greenbacks  by  issuing  bonds 363 

protests  against 234 

legal  tenders 3.55,  379 

national-bank  circulation 381 

silver  certificates 381 

Rural  districts  of  the  South,  condition  of 275 

sections,  scarcity  of  currency  in 250 

Russia  and  the  gold  standard \ 288 

credit  of 288 


VIII  INDEX. 

Page. 

Saie  reserve,  a 271 

Safetj'  fuml 428 

provision.s 319,  408 

investinjj;  in  bonds 365 

Scarcity  of  currency  iu  rural  sections 250 

Scotch  system 281 

Secretary  of  the  Treasury,  liehl  of 274 

Secretary  of  the  Treasury ,  rc]>or  t  of 260 

Securities  in  New  York  market  affected  ))y  export  of  gold 297 

Security  of  circulation 363 

Selfish  proposition,  a 331 

Sentiment,  banking  system  can  not  be  conducted  on 331 

Sherman.  .John  (Senator),  on  first  Treasury  uote  issue 237 

Sherman  law '. 244,  245,  261,  269 

effect  of 238,  239,  323 

Shipping  coin,  cost  of 429 

Single  gold  standard 239 

standard  only  in  this  country  thus  far 3  5 

Silver  and  silver  certificates  in  circulation,  1878-1896 431 

coin,  circulation  of 425 

getting  into  circulation 369 

coinage  agitation  ended 353 

currency,  present  amount  of 352 

dollars,  demand  for  paying  out 242 

effect  of  H.  E.  171  on .  - .' 342 

forced  into  circulation 343 

free  and  unlimited  coinage  of 240 

in  place  of  small  notes 372 

notes  redeemed  in 392 

question 262,  266 

redeemable  in  gold 244,  348 

redemption,  repudiation,  or  more  bunds 240 

certificates,  retirement  of 381 

standard  in  this  country  at  one  time 305 

utilizing  the  idle 391 

Small  communities,  establish  V)anks  in 251 

Solvency,  popular  idea  of  a  bauk's 308 

South  American  States  and  the  gold  standard 293 

uncovered  paper  money  of 293 

South,  rural  districts  of 275 

Source  of  our  financial  trouble 233 

Specie  held  by  banks  under  Suifolk  system 233 

Speculation,  unwise 232 

Standard,  gold  the  recognized 264 

silver  at  one  time  in  this  country 305 

single  only  in  this  eountry  thus  far 305 

Standard  of  value,  gold 3,54 

State  banks 276,  373 

of  issue 275 

uote  issues  of 276 

State-bank  tax,  repeal  of 407 

State  and  municipal  bonds  held  by  l)anks 395 

issuing  notes  against 390 

Stock  market  affected  by  nianii)u]ntion 297 

Stocks,  miscellaneous,  held  by  national  l)anks 396 

Strain  of  maintaining  paper  at  a  parity 261 

Suffolk  system 236.  253,  254.  255,  259,  299 

redemption  under 305,  307,  310 

specie  held  by  banks  under 237 

Supply  of  gold,  liismaiclc on 301 

Supreme  (,'<turt,  decision  of,  on  legal-tender  act 354 

Sur](lu8  of  gold  in  several  countries 296 

SuBX)ensiou  in  the  panic  of  1893 314 

of  gold  payments  at  the  New  York  clearing  house 433 

1                    cause  of 333 

Tax  on  circulation 279.  364,  378,  406 

Tennessee,  rates  of  interest  in 368 

Thanks  of  committee  to  Comptroller 430 

Transportation  of  currency,  cost  of 306 


INDEX.  IX 


Treasury  a  brokerage  shop 392 

as  au  agent  of  banks 339 

divorced  from  banking 321 

note  issue,  first 237 

relieved  of  current  redeniiition 278 

utilizing  the  bullion  in  the 373 

Uncovered  notes  of  Bank  of  France 268 

Great  Britain 268 

Imperial  Bank  of  Germany 268 

paper  money  of  European  countries 257,  258,  259,  290,  292 

South  American  States 259 

the  Ignited  States 259 

United  States,  amount  of  credit  currency  in 269 

the  greatest  debtor  nation 296 

gold  stock  of  the 269 

has  the  worst  financial  system  of  any  leading  nation 322 

paper  money  of  the 269 

Treasury.     {Sea  Treasury.) 

Use  of  checks  and  drafts,  enormous 300 

Utilizing  the  idle  silver 391 

Value  of  bonds  increased  by  issue  of  notes  to  par  value  of  bonds 283 

Visible  gold 301 

Volume  of  currency 366 

needed,  determining  the 246 

not  the  question 232 

variations  in 431 

Vote  of  thanks  to  Comptroller 430 

Walker  bill,  correct  banking  principles  in 324 

War,  banking  before  the 236 

civil,  conducted  on  a  gold  basis 330 

financial  legislation  of  the 237 

gold  payments  during 237 

in  Europe,  threat  of 298 

Wheat  famine  in  India,  effect  of,  on  export  of  and  demand  for  gold 273 

Withdrawal  of  gold  from  banks 332 

World  searching  for  gold 301 

World's  stock  of  uncovered  paper  money 263 

silver  and  crold 263 


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